Naver Corp Ord

For the benefit of our investors joining from home and abroad, we will provide simultaneous interpretation for the presentation and switch to consecutive interpretation for the Q&As. Analysts, investors, good morning. I am Paul Choi from the Capital Markets Office. I would like to thank the analysts and investors for joining NABOR's 2026 Q1 earnings presentation. On this call, we are joined by CEO Seon Choi and CFO Hee-Chul Kim and they will walk you through neighbors' 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 communications and have not been audited by an independent auditor and hence are subject to change after such review. With that, I will turn it over to our CEO to present on the business highlights. Good morning. I am Sian Choy, the CEO. In 2026, NABRA plans to take actionable AI as core strategy with a focus on delivering seamless experience in the end-to-end user journey from discovery and exploration and search to actual purchases and reservations. Beginning with the launch of a shopping agent in February, NABRA introduced user-facing agents through the launch of AI tab in April. In the second half of the year, Naver plans to launch an Asian for advertisers and business owners, further enhancing the overall experience across the Naver ecosystem. To enable this, Naver in Q1 secured a diverse range of content, including Olympic broadcasting rights that could be leveraged across key services, including Jazeek, Shopping, and Clip. The company is also establishing a foundation to gather offline transaction data through NPAY connect devices. complementing existing online data capabilities. By integrating these data assets with existing data sets across search, commerce, content, and ads, Naver will leverage and integrate a large-scale recommendation model to deliver optimized user experiences and content consumption and transactions, further reinforcing its competitive edge. Competition in the global AI market is rapidly shifting from conversational quality to the completeness of execution and conversion. In this environment, NABRA is uniquely positioned with an integrated stack spanning search, commerce, and payment and is best positioned to deliver a seamless agent-driven experience for purchases and reservations. AI briefing introduced early last year continued a strong momentum into Q1. As of March, long-tail queries grew by more than 2.5 times year-on-year, while clicks on follow-up questions increased more than tenfold compared to the initial launch period. In particular, the CTR of follow-up questions within AI Briefing exceeded that of traditional search recommendation models by more than 2.5 times, indicating that users are actively engaging with AI-generated insights and expanding the depth of their exploration. Starting in Q2, Naver will begin testing GenAI advertising integrated with shopping and local services followed by full-scale monetization in Q3. This initiative is expected to establish a virtuous flywheel in which AI search seamlessly leads to purchases and reservations within the platform with the goal of building a meaningful new revenue stream by year end. Furthermore, on April 27th, Naver launched the AI tab for Naver Plus members. AI Tab delivers a conversational AI search experience that provides personalized responses based on user search and purchase history while seamlessly connecting neighbor services to drive transactions such as purchases and reservations. At launch, the service supports shopping and restaurant discovery with plans to expand connected services and phases following a broader rollout. Moving forward, Naver will define conversion contribution or the extent to which agent-driven recommendations lead to actual purchases and reservations as a key metric for actionable AI while establishing a virtuous flywheel to drive transaction growth in key verticals including shopping and place. In this context, NAVER plans to focus its efforts on acquiring offline data this year. As GEN-AI becomes more widespread, the differentiation of broadly available public data is gradually diminishing, while the strategic value of proprietary data, which is difficult to collect and replicate, is increasing rapidly. NABR will integrate offline data captured through NP-Connect devices and play services with its existing online data assets, further reinforcing its structurally differentiated data modes. Further details on NABR's offline strategy will be provided in the service section later in the call. Next, I'll discuss our advertising business. In Q1, AI contributed more than 50% of total ad revenue growth. In 2026, Naver plans to drive structural advancements of its advertising business through three key growth drivers, with AI's revenue contribution expected to expand further over time. The first driver is enhanced targeting. AI-driven ad optimization and the impact of Ad Boost are expected to continue scaling this year. In addition, Naver is refining and integrating data previously dispersed across its services to train an integrated hyperscale recommendation foundation model. Based on this model, Naver aims to improve the relevance of content and ad recommendations while enhancing prediction accuracy at the industry and inventory level, ultimately driving higher advertising efficiency. The second driver is the creation of new revenue streams from Gen AI services. AI briefing ads are currently in testing and are expected to begin contributing to revenue following their official rollout in the second half of this year. The rollout will begin with informational queries to minimize cannibalization with existing search ads, while progressively improving monetization per traffic to better reflect this underlying value, taking conversion performance into account. Naver's competitive strength lies in its ownership of transaction data and integrated payment infrastructure, which are critical assets in the era of agentic AI. The full realization of actionable AI depends on a seamless transaction flow from login to reservation, order, and payment, which is also a decisive factor in advertising performance. In fact, Naver's internal data shows that ad conversion rates can differ by nearly double depending on whether payment infrastructure is integrated. and this effectiveness has also been validated through case studies from leading global competitors. Building on these strengths, Naver plans to progressively introduce AI agents for advertisers, making Naver's advertising solutions more accessible to small and medium-sized businesses, thereby broadening the overall advertiser base. The third driver is expansion into off-platform media. Since last November, NABRA has been conducting tests with Meta to enhance integration and will roll out sequential integrations with Criteo and Google in Q2. This expansion into external inventory is expected to strengthen advertiser retention while driving external traffic back into the NABRA ecosystem. Through these initiatives, NABRA aims to firmly establish new growth drivers for its ad business in 2026. Next, I'll discuss commerce, which has been a key driver of service growth. In Q1, SmartStore GMV grew 14% year-on-year, marking a solid start towards the company's full-year target of double-digit growth. This performance reflects both favorable market dynamics and the successful execution of Naver's commerce strategy, where Naver plus Store membership and logistics capabilities are reinforcing one another to form a virtuous ecosystem. The Maverick Plus Store app, which marked its first anniversary, has now established itself as a core transaction channel driving growth. In Q1, GMV drew the app through 28% quarter-on-quarter, significantly outpacing overall GMV growth, and has entered a self-sustaining growth phase supported by continued organic installs. And more importantly, user behavior continues to evolve. App users show higher engagement than web users, both in time spent and visit frequency, along with meaningfully higher purchase conversion rates. Time spent on the app has more than doubled since launch. The number of returning users increased 23% quarter on quarter, and purchase conversion rates are approximately 84% higher than on the web. In addition, Naver membership penetration among app purchasers has remained consistently above a certain level. Notably, this quarter's app GNV growth was driven not only by new user acquisition, but also by increased purchase frequency and spending from existing users, indicating that the Naver Plus Store app has firmly established itself as a go-to shopping channel. At the end of February, Naver officially launched its shopping AI agent, which brings together neighbors' unique data advantages. Hundreds of millions of product listings, extensive user-generated content such as reviews, and user shopping histories are neighbors' proprietary data assets that are not accessible externally and are serving as the core competitive engine of the shopping AI agent. Although still in the early stages, user adoption and the share of queries handled by the agent have increased significantly. There are also positive user signals, including higher conversion rates compared to traditional search and more than four-fold increase in returning users since launch. Starting in May, Naver plans to integrate key assets of Naver Commerce, including membership benefits and delivery and gifting with the agent. This will further enhance the agent into a business agent, which will go beyond a simple shopping guide to simultaneously improve user experience and monetization. Looking ahead, the agent will move beyond context-aware product recommendations to seamlessly incorporate membership benefits such as rewards and discounts into the decision-making process, enabling users to naturally select options that maximize tangible value. Strengthening logistics competitiveness is one of Naver's top strategic priorities for commerce in 2026. And then Naver is actively expanding and delivery adoption for key products while increasing direct fulfillment partnerships. In the second half, the company also plans to introduce unlimited free shipping in line with their membership benefits. The impact of end delivery is also evident in the data. Sellers adopting end delivery have recorded GNV growth rates approximately four percentage points higher than those have not, while order frequency among Naver membership users increased by more than 25% following the enhancement of shipping benefits. These results demonstrate that improvements in logistics are driving both transaction growth and stronger user retention. reinforcing a virtuous cycle within the ecosystem. Currently in March, Naver's fresh grocery service, where fast delivery is essential, has also shown rapid momentum, with GMB nearly tripling quarter-on-quarter. And looking ahead, Naver plans to further strengthen its differentiated logistics ecosystem through the rollout of membership-based unlimited free shipping in the second half and continued expansion of direct fulfillment partnerships through year-end. Q1 marked the initial phase where execution outcomes began to materialize on top of the commerce structure newly established in 2025. And going forward, NABRA will continue to organically integrate apps, AI, logistics, and membership into a unified growth engine, further solidifying its position in the commerce market. And then as mentioned earlier, NABRA aims to extend its core strengths built on online data and user scale into the offline domain. In particular, the company will focus on strengthening its AI competitiveness through the acquisition of offline transaction data while establishing an early leadership position in the offline e-commerce ecosystem. For the place business, Naver will prioritize the acquisition of offline restaurant data. To drive reservation growth, Naver is planning on multiple initiatives, including enhanced benefits integrated with Naver Pay, integration of order and transaction data from external POS partners to advanced search and CRM capabilities, and the introduction of agent-to-search that reflects user context. More specifically, NAIVER will expand partnerships with high-demand restaurants and commercial districts, as well as hotel buffets and Michelin-listed establishments, significantly strengthening data integration, accelerating GNV growth in these segments. Through these efforts, NAIVER aims to expand the scope of its place business while securing a strong leadership position in emerging offline categories. At the center of this strategy is NPAY Connect, an integrated offline device supporting payments, ordering, coupons, rewards, and reviews. NAVRA aims to establish a unified online to offline data ecosystem by connecting online search and reservation data with offline orders, payments, and customer loyalty data. Through NPAY Biz, an integrated business management platform for business owners, Naver will provide insights such as visitor trends, commercial district analysis, and customized CRM marketing, while offering consumers a seamless experience that extends online benefits into offline environments. The offline GMV generated through this initiative is expected to serve as a new growth driver for Naver Pay, while the accumulated goal of offline data will become a critical foundation for Naver's agentic AI capabilities. And over time, this structure where Naver's online strengths naturally extend to offline will evolve into a differentiated ecosystem that is difficult to replicate. Naver's global C2C platforms are strengthening their core capabilities and are reinforcing their positions in the global market. Poshmark has been driving structural improvements through enhanced search quality, UI UX upgrades, and improved marketing and operational efficiency since the second half of last year. And as a result, both user traffic and conversion rates have steadily improved leading to approximately 30% on year-on-year growth in both GMV and revenue in Q1. As these initiatives remain in the early stages, Naver expects this solid growth trajectory to continue. In Q1, Soda delivered a strong performance, with GMV more than doubling year-on-year, driven by robust demand in the Japanese trading card category and strong performance from offline stores. Cream continued a stable growth supported by ongoing category expansion, and the addition of new brands further strengthening its competitive positioning. Wallapop, newly consolidated in Q1, is a comprehensive C2C platform. By focusing on engagement within its core user base and accelerating activity in the used car category, the platform reached 23 million MAUs and continues to maintain its leading position in Spain. As C2C emerges as another key growth pillar, Naver will continue to strengthen the competitiveness of its platforms while expanding collaboration across its ecosystem, including search, advertising, and payments to unlock further synergies. Finally, I'll discuss Naver's enterprise business performance. AI-related B2B revenue, including GPU as a service contracts secured in the second half of last year, continue to be recognized in Q1, driving growth in the enterprise segment. In addition, NeighborWorks was selected in March as the official cooperation platform by the Ministry of the Interior Safety, Ministry of Science and ICT, and the Ministry of Food and Drug Safety in Korea. This proves a meaningful opportunity for further strengthening neighbors' leadership in the public sector AI transformation. Globally, neighbors' sovereign AI initiatives are progressing as planned. In Q1, the company generated project-based revenue in Saudi Arabia related to the digital twin platform service extension and super app developments. Naver also successfully transitioned the robotics deployment in Umaratha into the operational phase. In addition, Naver recently signed a strategic MOU with Tasa Consultancy Services, one of India's largest IT service providers, to explore a range of business opportunities in the region. Discussions are also ongoing with multiple partners across Europe on sovereign AI initiatives, and Naver plans to provide further updates as progress continues. Lineworks continues to deliver steady revenue growth. Supported by strong adoption of SaaS offerings such as AI Note and Roger, the company plans to further expand its customer base through the introduction of additional AI-driven features. In Taiwan, where Naver entered the market late last year, the company is steadily building partnerships by securing leading enterprises across multiple industries as customers. And looking ahead, Naver will continue to focus on enhancing its AI capabilities while actively pursuing sovereign AI opportunities across both domestic and global markets. Going forward, NABRA will continue to strengthen competitiveness of its core business by building a virtuous flywheel in which actionable AI drives traffic growth and expanded monetization. At the same time, the company will actively pursue opportunities and deliver results in global growth areas such as C2C, sovereign AI, and content with the goal of accelerating overall revenue growth. Now, CFO Heechar Kim will discuss the financial performance. Good morning. This is H.R. Kim, the CFO. I will now walk you through Q1 financial performance. In Q1, revenue reached 3.24 trillion won, up 16.3% year-on-year, driven by accelerated growth in core businesses, including advertising and commerce, as well as global C2Cs. Exploding the consolidation of WalletPop, total revenue increased by 15% year-on-year. Operating profit rose 7.2% year-on-year to $541.8 billion, supported by continued investment in AI infrastructure and strategic IP, including media rights for the Milano Winter Olympics and League of Legends Champions Korea, which are leveraged across neighbors' services. Operating margin came in at 16.7%. As mentioned in the previous quarter, starting from Q1, Naver will present its financial results under a revised revenue classification framework that categorizes revenue into core businesses in global growth areas to better reflect its business performance amidst long-term vision. Compared to the previous classification, certain FinTech revenues, such as credit card-related ads generated on Naver's platform, have been reclassified under platform advertising. And the service segment now includes not only shopping and place-related take rates and membership revenue, but also other revenues previously categorized under the search platform, such as Jazeek. In addition, the global growth segment includes Z2Z businesses, comprising Poshmark, Cream, Soda, and Wallapop, which has been newly consolidated in Q1, marking the first time these businesses have been disclosed under a dedicated category. NABRA will continue to provide transparent and consistent updates to investors on the performance of its core business. I will now discuss revenue by business segment. In Q1, neighbor platform revenue increased 14.7% year-on-year, supported by solid advertising performance and accelerated growth in commerce. Ad revenue grew 9.3% year-on-year to 1.39 trillion won with AI technologies increasingly embedded across neighbors' inventory and ad products, serving as a key growth driver. In particular, enhancements to add performance prediction models improve both efficiency and targeting, contributing positively to overall performance. In 2026, NAVIR plans to drive growth through enhanced targeting powered by unified recommendation model, the creation of new revenue streams from GNI services, and expansion into off-platform media. Building on last year's strong performance, NAVIR expects to maintain stable and resilient growth momentum this year. Q1 service revenue increased 35.6% year-on-year to 445.3 billion won, driven by strong growth in commerce. In particular, shopping delivered meaningful performance, supported by the successful establishment of the Naver Plus Store app, as well as enhanced logistics capabilities and strengthened membership benefits, which together accelerated smart store GMB growth. In addition, the impact of take rate structure changes implemented last year further contributed to the strong revenue growth. Membership revenue also recorded solid growth, supported by increased engagement on the Neighbor Plus Store app, which has established itself as a key purchase channel for Neighbor membership users. Next, Q1 financial platform revenue increased 18.9% year-on-year to 459.7 billion won. Total payment volume grew 23.4% year-on-year, surpassing 24.1 trillion, driven by continued smart store growth and expansion of Naver's external ecosystem. Of the total, off-platform payment volume reached 13.5 trillion won, up 32.9% year-on-year, with the share expanding to 56% of total payment volume. In Q1, revenue from global growth areas increased 18.4% year-on-year to $941.6 billion. The C2C segment delivered strong GMB growth across all platforms, including Poshmark and Soda. In particular, Poshmark has seen continued momentum with platform enhancement initiatives implemented since the second half of last year, translating into higher user traffic and improved conversion rates. And then as a result, both GMB and revenue have accelerated for three consecutive quarters, with revenue growing 34% year-on-year in Q1. Cream continues to diversify its categories, while strong performance in offline sales and trading card transactions in Japan by SOTA contributed meaningfully to revenue growth. Wallet Pop, newly consolidated this quarter, continues to demonstrate stable revenue growth in euro terms. reported by its leading position as a C2C platform in Spain and stronger user transaction activity across multiple categories. Content revenue decreased 1.4% year-on-year to $440.1 billion in Q1. Within this segment, WebToon revenue declined 2.3% year-on-year on a KRW-reported consolidated basis. For more details, please refer to WebToon Entertainment's earnings announcements. In 2026, Naver Webtoon plans to focus on content diversification and strengthening personalized recommendations, while also expanding its user-based through new service initiatives. Snow will continue to expand AI-powered camera features and diversify its monetization model, including subscription offerings while working to improve profitability. Enterprise revenue increased 18.8% year-on-year to $150.5 billion in Q1, supported by continued recognition of AI-related B2B revenue, including GPU-as-a-service contracts secured in the second half of last year. In Q1, neighbors of global sovereign and AI initiatives continued to progress steadily, including the expansion of digital twin-platform services and super-app projects in Saudi Arabia. Lineworks also maintains solid growth, with both paid IDs and revenue increasing consistently, supported by steady demand for SaaS offerings. Looking ahead, Naver aims to further solidify its leadership position in Japan's rapidly evolving business chat market, while continuing efforts to successfully establish its presence in Taiwan, where it entered late last year. Next, I'll discuss detailed cost items. Development and operations expenses increased 11.6% year-on-year, primarily due to headcount growth in the prior year and the consolidation effect of Wallapop. Partner expenses rose 19.9% year-on-year, driven by higher commission expenses in line with revenue growth, recognition of content rights costs, including the Winter Olympics, as well as the expanded deployment of NPAY Connect devices. For your reference, logistics transportation costs related to C2C, which were previously included in development and operations expenses, have now been reclassified under partner expenses to better reflect their nature. Priority figures have been received accordingly. Infrastructure expenses increased 32.5% year-on-year, mainly due to the acquisition of new computing assets, including GPUs. This year, Naver plans to make strategic investments to strengthen the competitiveness of its AI services, including the expansion of actionable AI experiences and the acquisition of fine data. As a result, infrastructure-related costs are expected to increase year-on-year. At the same time, Naver continues to pursue infrastructure efficiency across service areas such as search for strategic GPU allocation and the company-wide adoption of efficiency platforms. These efforts are already showing tangible results, including a 30% reduction in actual GPU usage versus initial expectations. Naver will continue to carefully review the scale of investment, taking into account AI monetization contribution, market conditions, and the company's business direction. Marketing expenses increased 18.9% year-on-year, driven by strategic marketing investments in the e-commerce segment, as well as higher promotional spending for Poshmark and WebTener Retainment. Amid a rapidly evolving market environment, Naver expects to continue expanding strategic investments in the near term to strengthen its competitive positioning. Ultimately, the company aims for these investments to support revenue growth in its core businesses and serve as a foundation for long-term growth drivers while contributing to enhanced shareholder value. Next I'll explain Naver's operating profits by business segment. Naver platform segment saw a 5.4 percentage point year-on-year decline in operating margin despite solid revenue growth in advertising and commerce primarily due to increased infrastructure investments including GPUs as well as higher costs related to securing content rights and strategic IP. Financial platform segment continued to deliver revenue growth. Operating margins declined slightly year-on-year, reflecting the expanded deployment of NNPAC connect devices. In the global growth segment, losses narrowed, supported by accelerated revenue growth in C2C business. Q1 consolidated net income declined 31.13% year-on-year to $291 billion, primarily due to higher foreign exchange losses and increased losses from equity method investments. Q1 free cash flow decreased by 152.1 billion won year-on-year to 319.8 billion won. This was driven by increased capex reflecting continued investment in infrastructure despite solid operating cash flow generation. And lastly, on April 14th, NAVAR paid a year-end dividend of 393.6 billion won, equivalent to approximately 30% of the average consolidated free cash flow over the past two years. As part of the company's efforts to enhance shareholder value, they have plans to consider additional retirement treasury shares exceeding the level required for employee compensation. Any future decisions will be communicated to shareholders through appropriate disclosures. This concludes the overview of our Q&A financial results.

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