Naver Corp Ord

Analysts, investors, good morning. I am Paul Choi from the Capital Markets Office. First of all, I would like to thank you for joining Naver's 2025 Q4 earnings presentation. On this call, we're joined by CEO Seon Choi and CFO Hee-Chul Kim, and they'll walk you through Naver's business highlights and strategies and financial results, after which we'll entertain your questions. Please note that the earnings results are KIFRS-based, provided for timely communication, and have not been audited by an independent auditor, and hence are subject to change after such review. With that, I'll turn it over to our CEO to present on the business highlights. Good morning, I am Sian Choi, the CEO. In 2025, Naver strengthened its technological competitiveness and personalized content recommendation by expanding its content supply and building an integrated foundation model while focusing on enhancing usability across services, including Home Feed and Clip, and introducing a new search experience through AI briefing. As a result, user engagement metrics within the Naver ecosystem showed improvement, and when combined with increased advertising efficiency driven by AI technologies, This enables NABRA to deliver new values to users. In 2026, NABRA will focus on delivering new experiences in which Gen AI is seamlessly integrated across its core services, including search, discovery, and exploration, and commerce. In the near term, NABRA will expand its AI briefing coverage, and within the first half of the year, launch its first shopping agent and AI tab to provide more immersive user experience. In parallel, Naver will continue to explore new monetization opportunities in line with these changes. In commerce, where a structural shift from search toward discovery and exploration centered around Naver Plus Store is gaining full momentum, Naver aims to continue delivering double-digit, year-on-year growth in Smart Store GMV this year by taking the lead in this market shift. With a clear objective of making 2026 a turning point that accelerates the next phase of growth in our commerce business, the company plans to further strengthen AI-driven personalization, expand and deliver infrastructure, and continuously enhance the competitiveness of its membership offerings. Building on this increasingly solid competitive foundation, Naver will move beyond short-term growth to establish enduring leadership in the commerce market. In 2025, Naver made meaningful progress by implementing and advancing AI technologies across the search and advertising services while validating their impact throughout the year. AI Briefing has expanded its coverage to 20% of integrated search queries, quickly establishing itself as a core search experience within Naver and demonstrating strong user engagement metrics. Over eight months since its launch, the service has gradually scaled up, with clear shifts in user behavior being witnessed. Moving away from the traditional way of entering one- to two-word queries, the volume of long-tail queries consisting of 15 characters or more has increased by more than two times since the early post-launch period of AI briefing in April, indicating the emergence of a new search experience. In addition, the time spent in the top section, where a summary of search results is presented, has remained stable. Furthermore, clicks on the section suggesting follow-up questions related to the original query have increased by more than six times compared to the early post-launch period. Notably, after the recent application of personalization technologies, the click-through rates for follow-up questions saw an additional increase of 20% or more confirming that users are finding the AI-provided information useful. These metrics indicate a structural improvement in the depth of user exploration and search quality driven by AI briefing, with the results reflecting the combined impact of expanding the collection of reliable proprietary data and continued efforts towards quality enhancements. Based on the expertise and confidence accumulated through this process, Naver aims to expand the AI briefing coverage to approximately two times its current level by the end of 2026. While the initial focus will remain on expansion within informational queries, this application will be extended to areas where Naver has strong competitive advantages, including shopping and local services, and personalization will be further advanced to deliver more tailored experiences for users. At the same time, Naver will carefully monitor factors such as potential cannibalization of search and advertising to flexibly adjust the scope of deployment as needed. These experiences are expected to be further expanded through the launch of AI Tab in the first half of this year. While it shares the same starting point as AI Briefing in organizing and presenting the answers that users are looking for in a clear and concise manner, It is differentiated as a conversational AI search that is connected to neighbors' broader ecosystem services, including shopping, place, and maps, ultimately designed to drive actions such as purchases, reservations, and orders. Leveraging neighbors' unparalleled user data and increasingly advanced reasoning capabilities, this will deliver an entirely new search experience that accurately understands each user's search, discovery, and exploration needs in which AI proactively guides the entire search journey that leads up to execution, including purchases and reservations. Starting this year, Naver plans to further secure content and data across the platform to strengthen its competitiveness in AI-driven discovery and exploration. Content is an area where user touchpoints and data accumulated across search, community, and commerce converge. and plays a critical role in expanding user traffic engagement while increasing the overall density of the neighbor ecosystem. The company is already seeing meaningful growth momentum across multiple areas, including Chizik. In addition, security and premium content such as broadcast rights for League of Legends as well as the Olympic Games and the FIFA World Cup is expected to drive new user acquisition and further strengthen the company's content ecosystem by leveraging increased traffic and IP. Looking ahead, Neighbor will continue to enhance its user experience, including deeper integration with membership offerings, while developing new monetization models aligned with such improvements with the goal of translating stronger user engagement into sustained revenue growth. Monetization of AI Search is also planned as one of the key priorities. With a top priority on preserving the user's exploration flow, ways to embed advertising naturally with useful content are being reviewed, with a testing set to begin in the second half of the year. While 2025 marks the year of laying the foundation for NextN and validating its potential as a new experience, 2026 will be the year the company builds on the accumulated know-how and proven AI technologies to expand into an agentic AI experience that only Naver can deliver. For this, Naver aims to further strengthen user loyalty and search satisfaction while striving to ensure that these efforts translate into the creation of new revenue streams. Building on the know-how accumulated over the past year through the deployment of AI Briefing, Naver has also been making ongoing efforts to optimize the infrastructure costs that inevitably accompany the expansion of AI Search. By consolidating GPUs that were previously managed separately at the individual service level into a unified operating platform and utilizing them across both training and service, the overall GPU or utilization has improved. In addition, by transitioning to lightweight models optimized specifically for AI search services, the company has strengthened its ability to handle the same workloads in a more cost-efficient manner. Through this multi-pronged infrastructure efficiency project aimed at addressing the cost structure, a reduction of more than 30% in the inference cost has been achieved. Building on this foundation, Naver plans to extend these efficiencies beyond AI briefing to AI tab, further establishing a sustainable operating model for AI services. Next, I'll discuss the performance of the advertising business. Of the 8.8% growth in total platform advertising revenue at Naver in 2025, AI contributed 55%, enabling the company to outperform all overall market growth despite an unfavorable external environment. Looking ahead to 2026, AI's contribution is expected to expand further. In the fourth quarter, growth moderated slightly as advertising spend declined in proportion to the concentration of travel and tourism demand during the extended Chisholm holiday, which lasted for 10 days. The impact of the extended holiday on total platform advertising revenue growth at Naver in the fourth quarter is estimated at two to three percentage points. This quarter, AI-driven optimization of ad inventory and the impact of AdViz continue to drive revenue growth. Since the second half of last year, the integration of advertiser centers across search and display, together with the expansion of advertiser-friendly programs, has significantly lowered barriers to entry for ad placement, and led to a substantial increase in new advertiser acquisition. As of the end of December, the number of performance advertisers increased by more than two times year-on-year, and the number of advertisers utilizing ad boost shopping has also grown rapidly. Given that advertisers who currently use AdWords Shopping account for approximately 30% of advertisers running shopping search ads, there is significant room for further expansion. In January, the company also introduced a simplified bid execution feature within the Smart Store Seller Center, enabling Smart Store sellers to experience neighbor advertising more easily and conveniently. In 2026, The company plans to strengthen its advertising competitiveness and expand inventory within the neighbor ecosystem while also pursuing new opportunities in external media, off-site channels, and the out-of-home advertising markets. In the fourth quarter, Naver successfully expanded its advertising inventory across existing internal media channels. In addition, since late November, the company has been testing enhancements to its off-site integration with Meta and plans to continue close collaboration with external partners in the first half of the year. Furthermore, a new advertising product that enables local advertisers within the Naver ecosystem to run out-of-home advertising easily and at reasonable price points will be launched, and this offering will be scaled in earnest. By expanding presence in external media, off-site channels, and the out-of-home advertising market in 2026, Naver aims to enable domestic advertisers to execute campaigns seamlessly across both online and offline channels, while also building sustainable group momentum for its ad business. Naver has continued to enhance the overall user experience through improvements in delivery, membership, and a structural shift in shopping centered around Naver Plus Store. As a result, Smart Storage EMV accelerated to 10% year-on-year growth in 2025, which demonstrates that structural competitive advantages that Naver has built are beginning to translate into tangible performance. 2025 was a turning point for commerce. Naver made a bold decision to move beyond the limitations of search-centric shopping and pursue a new shopping structure built around Naver Plus Store. While this was a challenging and risky decision, it was not merely the launch of a new service, but a core strategy to redefine the starting point of shopping around discovery and exploration. And this decisive move has delivered clear results within a short period of time. neighbor's commerce business is now ready to move to its next phase. Over the coming years, strengthening the delivery competitiveness will be set as a top priority of neighbor's commerce strategy, and this will be pursued through active investment and execution. This is not about feature-level improvements or incremental enhancements. Rather, neighbor is taking an open and comprehensive approach across partnerships, infrastructures, and operations to fundamentally elevate its delivery competitiveness and deliver a level of experience that can reshape market perception. Through these efforts, end delivery coverage is targeted to expand to 25% this year and over 35% next year, with a mid- to long-term target of reaching at least 50%, representing a minimum three-fold increase from current levels within three years. Over time, the objective is to elevate delivery from a constraint on neighbor shopping to a clear reason for choice. Membership has also emerged as a key pillar of Naver's commerce growth. Over time, Naver has continuously strengthened its membership value through global content partnerships including Netflix, Spotify, and Microsoft Game Pass, as well as core commerce benefits such as free shipping and free returns. And these efforts have supported the stable retention of recently acquired users within the platform. This is functioning as a foundation for converting short-term users' inflows into structural growth. And accordingly, a clear target has been set this year to increase active membership users by more than 20% year-on-year. Building on the competitive strengths established through these changes and investments, the goal is to achieve double-digit growth in smart storage EMV in 2026. Within the growth framework of neighbor commerce, the C2C business is also establishing a clear role and momentum. Wallapop, for which the acquisition was completed at the end of January, delivered solid double-digit performance in the European C2C market in 2025. Poshmark also showed a clear rebound from the second half of the year, achieving growth exceeding 20% in both revenue and GMV in the fourth quarter, with a similar level of growth expected this year. In addition, CREAM and SOTA continue to strengthen competitiveness in their respective markets and maintain stable growth trajectories, positioning the C2C segment as another key growth pillar supporting labor-commerce performance. Starting from the first quarter, WalletPop's results will be consolidated, and revenue will be disclosed under a separate classification to provide investors with a clearer visibility into C2C performance. While 2025 was the year in which the structure of shopping was reshaped, the years from 2026 and onward are expected to mark a phase in which meaningful change is delivered in earnest, built on a stable foundation. With this foundation in place, neighborhood commerce is positioned to significantly accelerate the pace of execution. Lastly, I will discuss the performance of the B2B business. Fourth quarter enterprise revenue grew 16.6% year-on-year after excluding the base effect from LI-related settlement adjustments. In parallel, neighbor sovereign AI business continues to progress in line with plan. Starting with Korea Hydro Nuclear Power, customized sovereign AI projects are being rolled out across a wide range of sectors, including finance, economy, and defense, and the public sector, based on detailed understanding of each customer's specific needs. Following the announcement of a Korea-specific medical LLM jointly developed with Seoul National University Hospital in the fourth quarter, a financial and economic AI platform was completed in collaboration with the Bank of Korea in January, making the world's first employment of such a platform by a central bank. Building on the successful use cases in Korea, multiple DX projects are currently underway in regions including Saudi Arabia, Thailand, and Japan. In particular, in Saudi Arabia, service revenue related to digital twin and super app initiatives has been generated since Q4 through a joint venture with the Saudi Ministry of Municipalities and Housing, establishing a monetization reference for sovereign AI. NABRA will continue to focus on strengthening AI technology competitiveness while actively identifying additional sovereign AI business opportunities both domestically and globally. Going forward, Naver will continue to focus on strengthening the competitiveness of core business, including search, advertising, and commerce, and through AI, while over the mid- to long-term, expanding global growth initiatives by identifying additional opportunities in sovereign AI and incorporating future growth drivers, such as Web3, upon completion of the Tonamu acquisition. Now, CFO Heechar Kim will discuss the financial performance. Good morning. This is teacher Kim, the CFO. I will now walk you through Q4 full-year financial performance. Q4 revenue increased 10.7% year-on-year to 3.2 trillion Korean won, supported by growth across core businesses, including advertising, commerce, and fintech. On a full-year basis, growth accelerated, with revenue rising 12.1% year-on-year to 12 trillion Korean won. Despite continued investments to strengthen AI commerce competitiveness and expand strategic initiatives in commerce, Q4 operating profit increased 12.7% year-on-year to 610.6 billion Korean won with an operating margin of 19.1%. For reference, excluding one-off effects such as the ally settlement impact reported in the Q4 of 2024 and changes to the usefulness of certain assets in the Q4 of 2025, Fourth quarter operating profit grew 16.8% year-on-year. For the full year of 2025, operating profit increased 11.6% year-on-year to $2.2 trillion in 2021. Q4 neighbor platform. Fourth quarter neighbor platform advertising revenue reflecting on the underlying competitiveness of neighbor advertising business. increased 6.7% year-on-year. As continued improvements, AI-driven optimization and automation initiatives that led to advertising efficiency began scaling in earnest from the first half of 2025 and offset the impact of fewer business days resulting from the Chuseok holiday in October. On a full year basis, growth accelerated to 8.8% year-on-year in 2025 with continued efforts planned to achieve growth above the market level this year. Q4 search platform revenue recorded 1.06 trillion Korean won, down 0.5% year-on-year. Excluding the impact of the LI settlement effect, revenue increased 1.8% year-on-year. For the full year 2025, search platform revenue rose 5.6% year-on-year to 4.17 trillion Korean won. With the transition to the era of Gen AI, both user behavior and ad market are being reshaped relatively. Against this backdrop, Naver will continue its efforts to focus on building an advertising ecosystem optimized for the AI search environment while also securing differentiated growth drivers through expansion beyond its platform. Commerce revenue increased 36% year-on-year in the fourth quarter to 1.05 trillion Korean won and rose 26.2% year-on-year for the full year to 3.67 trillion Korean won. As of the fourth quarter, cumulative downloads of Naver Plus Store apps surpassed 12.9 million, while both GMV and new membership sign-ups continued to grow significantly. Notably, new membership sign-ups increased 71% month-on-month in December, with the upward trend continuing into January. Commission and sales revenue grew 45.2% year-on-year in the fourth quarter, driven by the successful establishment of the Naver Plus Store, inflows of new users amid changes in the external environment, expanded year-end peak season promotions, and the continued impact of the revised peak rate structure. At Poshmark, improvements in the search algorithm and delivery experience amid a recovering macro environment significantly enhanced the user shopping experience, resulting in both GMV and revenue growing by more than 20% year-on-year in the fourth quarter. Commerce advertising revenue grew 26.8% year-on-year into fourth quarter, driven by continued improvements in ad placement optimization and the rapid increase in the number of advertisers experiencing its effectiveness. Membership revenue increased 17.0% year-on-year into fourth quarter, supported by the addition of new benefits, including partnerships with Spotify and LockedMR Delivery, resulting in concurrent growth in both loyal customers and new subscribers. FinTech revenue increased 13% year-on-year in the fourth quarter to 453.1 billion Korean won and rose 12.1% year-on-year for the full year to 1.61 trillion Korean won. Fourth quarter total payment volume reached 23 trillion Korean won, representing a 19% year-on-year growth, while continued expansion of the external ecosystem across both online and offline channels drove the proportion of off-platform payment volume to a record high of 56%. In November, NetNPay Connect, an integrated terminal supporting payments, reviews, coupons, orderings, and rewards was officially launched. Going forward, integration with place data, including reservations and orders, will enable CRM capabilities. Positioning the platform as a comprehensive business management solution for smart place business owners with continued feature enhancements plan to help more businesses build and retain loyal customer bases. Content revenue declined 2.3% year-on-year in the fourth quarter to $456.7 billion per year, while on a full-year basis, revenue increased 5.7% year-on-year to $1.9 trillion per year. Within this segment, WebToon revenue, based on the consolidated results in KRW terms, declined 2.6% year-on-year in the fourth quarter. For more details, please refer to WebToon earnings announcements. Her reference strategic partnership with the Walt Disney Company announced in the previous quarter has been further strengthened following the completion of Disney's 2% equity investments. Web10 Entertainment is currently accelerating development of an integrated platform targeted for launch within the year, enabling users to access Disney's flagship IP portfolio, including Marvel Universe and Star Wars, alongside selective Web10 original titles and a single destination. This partnership is expected to serve as an important inflection point extending beyond content distribution to accelerate the establishment of global IP hub and expansion of presence within the North American content ecosystem. Snow revenue increased 8.5% year-on-year under Q4, driven by continued growth in paid subscribers to camera apps. Four-quarter enterprise revenue recorded a 171.8 billion Korean won, down 3.2% year-on-year. Reflecting the full-quarter contribution of new GPS service revenue streams that began the third quarter, as well as newly generated revenue from global DX projects in Saudi Arabia, including Super App and Digital Twin initiatives, enterprise revenue grew 16.6% year-on-year when excluding the base effects related to LI settlement adjustments. At LineWorks, Double-digit revenue growth continued, supported by strengthened online direct sales and steady sales of SaaS products. In addition, expansion into the Taiwan market was completed during Q4, and efforts will continue to focus on accelerating the market penetration by leveraging the experience of maintaining the number one position in Japan's business chat market for eight consecutive years. Starting in 2026, revenue classifications will be revised to more clearly reflect the performance of core businesses and new growth opportunities. Next, I'll discuss detailed cost items. Development and operation expenses increased 10.2% year-on-year into Q4 and 8.7% for the full year, primarily respecting headcount growth associated with new hiring. Partner expenses rose 9.1% year-on-year into Q4 and 10.8% for the full year, driven mainly by higher revenue-linked costs, including sales commissions and payment processing fees. Infrastructure expenses increased 10.9% year-on-year into Q4 and 15.1% for the full year, reflecting continued infrastructure investment, as well as the impact of revisions to useful as a certain assets, including infrastructure facilities. To lead the era of GenAI-driven search and agent-based services, AI technologies continue to be integrated across all service domains, alongside sustained strategic infrastructure investments. Strategic investments will be further expanded this year to strengthen service competitiveness in the AI era, including initiatives such as the launch of a shopping agent and AI tab. Marketing status increased 12.9% year-on-year in Q4 and 20.1% for the full year, driven by strength in strategic marketing initiatives in the commerce segment, as well as higher point-of-cross-cost associated revenue growth. Looking ahead, investments across the neighboring ecosystem will continue to focus on enhancing user experience, particularly in content, AI infrastructure, and commerce delivery capabilities, which is expected to result in higher associated costs. They are considered essential to strengthening the competitiveness of Naver's core businesses and expected to support accelerated revenue growth over the mid- to long-term. Next, I'll explain Naver's operating profit by business segment. First, the integrated search platform and commerce segment maintain a stable operating profit margin above 30%, despite the slight year-on-year decline in profitability driven by the accelerated adoption of AI cross-services, including the expansion of AI briefings, as well as year-end shopping promotions, even amid continued solid revenue growth. In the fintech business, profitability improved modestly, supported by the continued expansion of smart store-related and off-platform payment revenues. In content, operating losses narrowed due to the dissipation of the base effect related to WebToon's IPO-related expenses in 2024, along with cost-efficiency improvements of SNL. Losses in the enterprise business also narrowed, reflecting the full quarter impact of GPM service revenue in Q4. Q4 consolidated net income and totaled $164.6 billion year-on-year, declining 68% year-on-year, primarily due to an increase in goodwill impairment losses to recognize the period end. For the full year, net income reached $1.82 trillion year-on-year, down 5.8% year-on-year. Q4 free cash flow totaled $185 billion year-on-year, decreasing by $252.8 billion year-on-year, as increased capex associated with expanded infrastructure investments more than offset solid operating cash flow. Finally, the new three-year shareholder return program will be out loud. For each fiscal year from 2025 to 2027, shareholder returns are planned at 25 to 35% of the average consolidated free cash flow over the preceding two fiscal years to be delivered through share repurchases and retirements or cash dividends. Under this new program, the 2025 fiscal year dividend We will now move on to the Q&A session. We will now move on to the Q&A session. We will now move on to the Q&A session.

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We will now begin the Q&A session. To ask a question, please press star and number 1 on your phone. To withdraw your question, please press star and number 2. In consideration of all participants, We kindly request that you limit your questions to two per person. The first question will be provided by Jaemin Ahn from NH Investment and Securities.