Naver Corp Ord

Good morning. We will now begin NABIRS 2026 Q2 Earnings Conference Call for the benefit of our investors. Joining from home and abroad, we will provide simultaneous interpretation service 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 on this call, we are joined by CEO Soo-yeon Choi and CFO Hee-cheol Kim, and they will walk you through Naver's business highlights and strategies and financial results after we will entertain your questions. Please note that the earnings results are KIFRS-based, provided for timely communications, and have not yet 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 our business highlights. Good morning. I am Soo-yeon Choi, the CEO. Before I begin our Q2 business update, I'd like to talk about our strategic partnership with NVIDIA and our AI factory business. As announced in June, Aver is working with NVIDIA to jointly build and operate AI factories on a global scale. We expect to begin generating revenue with the launch of our first 55 megawatt AI factory in the first half of 2027. We then plan to expand capacity to 100 megawatts by the end of 2027 and 200 megawatts in 2028. On our long term, it is to build AI infrastructure at the gigawatt scale. We see this as an investment in a structurally growing market, not a one-time business opportunity. As generative AI adoption accelerates, AI transformation expands across industries, and inference in AI agents become more widespread, we expect global demand for AI computing to continue growing over the medium to long term. Some have raised concerns that low-cost, high-efficiency models could reduce computing demand. However, we see the opposite, as the cost per unit of compute declines as AI adoption, inference, and AI agents will become more widespread, driving further growth in the overall computing demand. Today, coding is the most proven AI use case. Demand for computing across broader industries and physical AI has yet to fully emerge. As AI expands across more industries and services, we expect additional inflection points where overall computing demand accelerates again. We are already seeing early signs of this trend. Leading global technology companies continue to report strong cloud performance and growing older backlog. Their continued investments in AI also demonstrate that AI demand for AI infrastructure is already becoming a reality. Meanwhile, despite growing demand, expanding supply takes time. It requires large-scale power, suitable sites, cooling infrastructure, skilled talent, regulatory approvals, and broad community support. Many companies are now beginning to build new data centers. They continue to face bottlenecks, including labor shortages, power constraints, limited semiconductor supply, and local opposition to New Construction. Nibiru is in a different position. Through our partnership with NVIDIA, we have secure technology and supply support. We also have ready access to power and sites, strong capital partnerships, and yet years of experience operating a full-stack platform. In addition, we were the first in Korea to secure customers and launch GPU services. We will build on that experience as we scale the business. To further strengthen this partnership, NVIDIA has decided to participate for the first time in Asia in a private placement of approximately US$1 billion of newly issued neighbor shares. This goes beyond the technology partnership. It reflects a long-term commitment in which both companies will share the opportunities and the risks of this business. At the same time, we are in discussions with Brookfield, a leading company Global Asset Managers to finance $9 billion of computing infrastructure required for the AI factory. We have selected Brookfield as our exclusive preferred partner and plan to move toward a definitive agreement. Under this partnership, NVIDIA will provide the technology and ecosystem, our capital partner will finance the infrastructure, and Naver will lead the platform operations and customer service. This structure allows us to scale the business quickly while keeping our upfront capital requirements to a minimum. We are also confident in our ability to secure customers. Through our global off-takers, NVIDIA's ecosystem, and our existing enterprise and public sector customer base, we expect to secure customers on their initial capacity ahead of launch. We have many years of experience operating data centers reliably. Our experience together with our sovereign AI track record demonstrates our full-stack operational capacities. to customers that require security and reliability. The AI needs of each industry are different. Manufacturing requires AI for production innovation. Defense requires AI infrastructure in air-gapped environments. The public administration sector is focused on AI transformation, while financial institutions prioritize data security. Yet across all these industries, demand is growing for trusted infrastructure and technology partners. NABIRD has both strong track record in areas where security and data sovereignty are critical. This includes GPU services for leading Korean enterprises, a nuclear power plant AI platform for Korea Hydro and Nuclear Power, and a dedicated AI platform for the Bank of Korea. More recently, we have also expanded into the defense sector. Through partnerships with Korea Aerospace Industries and Hanwha, we are continuing discussions on AI models and dedicated private AI cloud infrastructure for defense applications. The reason Naver has been able to continue building these references is that we have expanded our capabilities beyond data center and cloud operations and sovereign AI model development by adding the AI factory businesses. This allows us to flexibly provide the services the market needs. With our full stack capacities, expanding infrastructure model services, and together with our proven sovereign AI experience in Korea and overseas, we are approaching this market with a high value added offering that combines GPU computing cloud models and managed services, rather than simply leasing computing capacity. Supported by long-term contracts and high utilization rates, we aim to deliver meaningful revenue and profit early on. Through our AI factory business with NVIDIA, we will secure a new growth driver in the global AI computing market. Next, let me walk you through Neaver's platform performance for the second quarter. Neaver's core strategy is actionable AI, We are delivering a new search experience that seamlessly connects search, commerce, and payments. At the same time, we are actively applying AI across our services to improve content creation and quality, enhance the effectiveness of our advertising products, and deliver a better user experience. These efforts began to translate into stronger user engagement and improved monetization metrics in the second quarter. First, let me highlight the performance of AI Tab, our flagship actionable AI service. AI Tab officially launched in June 25th. As of early August, it has surpassed 10 million monthly active users, establishing itself quickly as a new search engine. Weekly return rates, a key indicator of user loyalty, have also more than doubled since the early testing phase and continue to grow solid momentum. At the same time, the CTR for shopping and local content has exceeded 40%, showing that users' exploration is translating into actual purchases and reservations. Powered by personalized recommendations based on real purchase data and shopping reviews, AI Tab continues to shorten the journey from search to decision-making. AI Tab is quickly establishing itself as actionable AI that helps people in their everyday lives. AI Tab Q3 will enhance a real estate search function and whale browser agent. We also plan to launch a health agent later this year. Going forward, AITel will continue to evolve with a focus not only on quality of its recommendations, but also on its contribution to actual transaction conversions. Through this, we will further strengthen the virtuous flywheel that drives transactions across our platform. We will also continue to strengthen discovery and exploration by securing our content and data. Through NeighborMate, we have built a foundation for attracting high-quality creators and encouraging quality content. During the FIFA World Cup in June, we were also able to apply our media AI technology to automatically generate highlight clips during matches. In addition, we also introduced tag recommendations and anti-based features to further improve content quality. Monetization through generative AI advertising is also gaining traction. AI Briefing Ads completed testing during the second quarter and officially launched at the end of July. They are significant in two ways. First, generative AI services are beginning to emerge as a new source of advertising revenue. In the near term, we are primarily applying AI Briefing Ads to informational queries that were previously not monetized. This minimizes cannibalization of our existing advertising businesses. As a result, we expect AI briefing ads to expand to new advertising inventory rather than replacing existing search ads. Initial results have also been positive. AI briefing ads delivered a cost per click that was 30% higher than existing search ads, and CTR was also more than 30% higher. Purchase conversion rates improved by more than threefold, demonstrating strong effectiveness from advertisers' perspective. In the generative AI era, the key competitive advantage lies in understanding users' intent and context with greater precision and connecting them with the most relevant ads in real time. Going forward, we will apply the ranking and recommendation technologies validated through AI advertising across our advertising products, further strengthening the competitiveness of our advertising platform. Second, generative AI is becoming the foundation for increasing transaction value across the platform and expanding long-term monetization opportunities. In particular, the strong purchase conversion rates of AI briefing ads demonstrate more than just improved advertising efficiency. They show that AI can accurately understand users' intent and connect them to actual purchases and reservations. Naver is the only full-fledged platform in Korea that seamlessly connects search, shopping, place, and payments. As AI agents become more widely used for everything from exploration to purchases and reservations, we believe this full funnel structure will become a key growth driver for expanding transaction volume across our platform. AI briefing AI's are the first example of how actionable AI is creating new monetization opportunities. As AI agents play a greater role in connecting users with services throughout the transaction journey, Naver will continue to create new monetization opportunities beyond advertising, including commerce and payments. In doing so, we will further expand the value of our platform. Next, let me discuss our commerce business, which continues to drive growth across our services. In the second quarter, Smart Store GMB grew 15.5% year-on-year, with growth continuing to accelerate. This was driven by the three engines of the NeighborPlus Store app membership and delivery, working together to strengthen the structural competitiveness of the NeighborCommerce and deliver solid business results. First, the NeighborPlus Store app has firmly established itself as a primary transaction channel for our loyal customers. In the second quarter, GMB generated through the app grew more than 35% year-on-year, significantly outpacing our overall growth. The app's share of total GNV also continued to increase rapidly. In particular, traffic from returning users is growing at about four times the pace of new user traffic. App users also spend more per visit and make purchases more frequently than web users. This shows that the app's growth is being driven by repeat visits and purchasing habits among our existing customers. Membership is also serving as a strong driver of app growth. About 80% of customers who make purchases through the app are membership subscribers. Following the expansion of free shipping and free returns, the purchase frequency of end delivery membership customers increased by about 29% and their share of transactions exceeded 70%. As membership has proven to be a key driver of transaction growth, we plan to accelerate the expansion of our membership base. To support this, we will broaden our everyday lifestyle partnerships and expand offline payment benefits. Our goal is to make membership a core pillar that connects the entire neighbor ecosystem. The most notable achievement in commerce this quarter is that our stronger delivery capabilities are directly driving both user purchases and seller growth. As of June, end delivery GMV on Smart Store increased 76% year-on-year. Coverage also exceeded 20%, keeping us on track to reach our year-end target of 25%. In addition, the average GMV of end-delivery sellers grew significantly, more than that of other sellers in the second quarter. This demonstrates that delivery is not only increasing purchase conversions and repeat purchases, but also serving as a meaningful growth driver for sellers by helping them expand their transactional volume. Our three strategies for expanding end delivery are also progressing as planned. First, we are supporting sellers of core products with high delivery sensitivity. This is lowering the initial barriers to adopting end delivery and helping expand both participating products and sellers. Second, we are expanding direct contracts between neighbor and sellers. The scale of these direct contracts have increased by more than four-fold year-on-year, and we will remain on track to achieve our goal of raising the share of these direct contracts to more than 50 year-by-year end. As we expand these direct contracts, we are standardizing logistics terms and operating standards that were previously fragmented. This also provides the foundation for more competitive pricing and more consistent delivery quality. In addition, we are reducing sellers' operational burden by improving returns, settlement, and order management. This enables even small and medium-sized sellers to easily leverage high-quality delivery services. Third, we are strengthening delivery benefits through membership. Starting in October, we will support faster returns through a dedicated membership return center and officially launch a dedicated early morning delivery service. Just as our enhanced delivery benefits have led to higher purchase frequency and a greater share of transactions among membership customers, We expect that these new benefits in October to further strengthen the virtuous flywheel between the membership and end delivery, while accelerating end delivery growth in the second half of the year. NABR will continue to have the app drive discovery and exploration, membership drive customer engagement across the NABR ecosystem, and delivery drive purchase conversion and repeat purchases, further strengthening the virtuous flywheel. Next, I will talk about the financial platform. In the second quarter, Naver rapidly expanded the installation of NPAY Connect payment devices, marking our full-scale entry into business of AI platform for business owners by connecting offline data with the Naver ecosystem. The purpose of Connect is to extend the success formula Naver has built online through search, data, advertising, shopping, and payments into the offline world while establishing Naver's physical touchpoints there. Starting this year, we plan to rapidly increase market penetration and establish a leading position. Through this, we aim to proactively secure a competitive advantage in data based on offline business owners that will be difficult for competitors to replicate. The offline commerce payments market is more than three times larger than the online market, yet it remains insufficiently digitized, its data is not yet well-structured, and it remains disconnected from the online ecosystem. Naver therefore sees this as a business opportunity with significant growth potential and the strategic area that must be secured early. Based on this view, we have accelerated our rollout schedule which was originally planned to be phased out throughout next year. As a result, just seven months after the launch, NPAY Connect has already secured more than active business owners than expected and continues to expand rapidly. There are three main reasons why Naver is investing in NPAY Connect. First, offline data will become a key asset that strengthens the competitiveness of the entire neighbor ecosystem. As AI evolves beyond providing information and recommendations to understanding users' intent and carrying out reservations, orders, and payments, offline behavior data will become an essential asset rather than an optional one. Nationwide touchpoints with users' everyday activities, including store visits, order history, responses to promotions, and payment methods, combine with neighbors' unique Online data will become a key asset that serves as a moat in the AAI era. NAVER plans to combine place search and reservation data, user's ID, payment, and membership data with the offline data collected through M-Pay Connect. This will connect the entire online-offline journey from search to reservations, orders, payments, and repeat visits under a single ID. And through this, AI agents including Naver AI tab will be able to deliver more sophisticated personalization and more complete execution. Our advertising capabilities will also become more sophisticated. Second, it will create a new monetization opportunity based on the business owner's touchpoints we are establishing, including business owner solutions and financial services for our business providers. We plan to evolve Npay Connect beyond the simple payment device into an agent for business owners that analyzes sales, visitor traffic, changes in the commercial district, while recommending the next actions such as coupons and promotions. Just as SmartStore became the foundation for online business owners, our goal is to provide offline business owners with a new AI platform centered on place and Npay Connect, integrating reservations, orders, payments, customer management, and marketing. Monetization will be rolled out in phases. In the initial stage, we will expand our business owner touchpoints by integrating NPAY Connect with Place. We will enhance CRM, customer analytics, commercial area analytics, coupon and promotional management, and store operation tools to create new monetization opportunities including business owner solutions. We will further expand our revenue streams by adding financial intermediation services such as low-interest insurance, Powered by business owner sales and customer data as well as new advertising products based on offline visit and purchase conversion data Third, it would allow us to significantly expand the scale of our offline payments and build a new revenue base By establishing one of the largest business owners networks in Korea We aim to become the clear market leader in domestic B2C payment volume combining both online and offline transaction as early as next year We also aim to expand the offline payment volume based on neighbor IDs to 130 trillion KRW within the next five years. This will broaden our payment fee revenue base while also expanding the foundation that connects user IDs, memberships, reservations and orders, advertising and financial services. On top of this, we will introduce a wide range of monetization models linked to Connect. Once the initial foundation is in place, our cost burden will gradually decline, while monetization opportunities across payments Advertising business owner solutions and financial services will expand rapidly. The AI platform businesses for business owners, which connects offline data with the neighbor ecosystem, is an area where neighbor strengths can be fully leveraged. Going forward, we will secure business owner touchpoints and a data foundation early and quickly demonstrate profitability by connecting them to a wide range of monetization models. Our global expansion business, One of NAVER's new growth engines delivers strong growth in 24.4% year-on-year in the second quarter. In particular, our C2C business continues to deliver strong GMB and revenue growth, driven by the strengthening competitiveness of the overseas platform we have invested in, including Poshmark, Soda, and Wallapop. In our enterprise business, the digital twin platform developed by our joint venture in Saudi Arabia has been selected as the Ministry of Municipality and Housing's single national standard platform. Development is also underway with the goal of launching a map-based super app later this year. Naver will continue to strengthen the AI competitors of this core business while securing new growth engines through AI Factory to create even greater growth opportunities. Now, CFO Hee-cheol Kim will discuss about the financial performance. Good morning. This is Hee-cheol Kim, the CFO. I will now walk you through Q2 financial performance. In Q2, revenue reached 3.3888 trillion KRW, up 16.2% year-on-year, driven by strong growth of the global C2C business and the performance of the shopping business. As a result of one-off expenses, including deploying and paying Konect devices and recognizing strategic IPs, such as broadcasting rights for the World Cup, as well as planned infrastructure investments such as GPU purchases, operating profits for Q2 recorded $523 and Seon-joo Chae. Based on our long-term data analysis, the actual average useful life of computing assets was longer than the existing depreciation schedule, which led to its extension. Moreover, the useful life schedules that differed across asset types were unified, and it is expected to generate an expense deferral benefit of around 100 billion KRW. For reference, excluding one-off factors such as the impact of consolidating Wallapop and Pi, Connect, broadcasting rights, and changing of the useful life period, Second quarter operating profit increased 0.9% year-on-year. Next, I will explain about the revenue by business segment. In Q2, neighbor platform revenue increased 12.3% year-on-year, driven by strong performance in commerce and consistent efforts to optimize and enhance advertising efficiency. Advertising revenue recorded 1.4472 trillion KRW A7.5 growth year-on-year. Naver continues to refine its ad performance prediction in our targeting models across various industries and placements while expanding AI-driven ad optimization. As a result, AI serves as a key growth driver for the advertising business, contributing more than 60% of incremental ad revenue in the second quarter. In particular, powered by product enhancements, the paying advertiser base for ad boot shopping grew more than 2.5-fold year-on-year, Going forward, we will continue to improve ad efficiency and targeting based on our integrated recommendation model, while expanding new ad opportunities across generative AI services. Q2 service revenue increased 31.3% year-on-year to 455 billion KRW, powered by strong growth in commerce. Smart store GMB in Q2 rose 15.5% year-on-year, owing to the virtuous cycle among our app membership and delivery services. In June, the synergies from Samsung's customer appreciation and the Neighbor Plus sale promotion have materialized, and Neighbor's exclusive new products and brand-collaborated products received strong positive responses, contributing to the quarterly GMB growth. Membership revenue also recorded solid growth, supported by strength in delivery benefits and inflow of new members driven by the World Cup. Next, Q2 financial platform revenue increased 16% year-on-year to $770,000. to 470.7 billion KRW. Supported by smart store growth and expansion of external ecosystems, the total payment volume grew 21% year-on-year to 25.2 trillion KRW in the second quarter. Of the total, off-platform payment volume increased by 26.2% year-on-year to 14.1 trillion KRW and continues to account for 56% of the total payment volume. In the Q2, revenue from global growth areas increased 24.4% year-on-year to 1.159 trillion KRW. In the C2C segment, revenue grew 74.9% year-on-year with ongoing efforts to strengthen core platform competitiveness translated into solid performance. Poshmark saw significant improvements in purchase conversion and purchase frequency driven by quality improvements in AI-powered search and recommendation and recorded over 40% in revenue growth year-on-year. SORA delivered record high earnings with both revenue and GMV growing more than two-fold year-on-year driven by ongoing boom in trading card transactions. Wallapop continues to achieve GMV growth that outpaces the growth in the Spanish retail market supported by the growth of the European C2C market as well as efforts to stimulate platform transaction activities such as launching local delivery services and personalizing the home feeds of their app. At the same time, Wallapop is expanding its market leadership centering around the used car category, which holds top position in the number one registered listings. Content revenue increased by 0.5% year-on-year to $464.3 billion in Korean won in Q2. Within this segment, web team revenue increased by 0.9% year-on-year on a Korean won reported consolidated basis. For more details, please refer to the web team entertainment earnings announcement scheduled for August 10th local time. In 2026, Naver Web Team plans to focus on content diversification and strengthen personalized recommendations while also expanding its user base through new services and initiatives. Snow will continue to expand AI-powered product offerings and work to improve profitability. Enterprise revenue increased by 21.3% year-on-year to 153.7 billion KRW in Q2, driven by sustained B2B revenue from AI initiatives, including the GPU as a service deal secured in the second half of last year. In Q2, revenue posted solid growth as new cloud-based AI businesses with Korea Hydro and Nuclear Power and Bank of Korea transitioned from implementation to the operation and expansion phase. And discussions regarding new adoption within the financial sectors are also continuing. Technological capabilities for robotics have accumulated in the 1784 building was applied to the Tokyo Midtown Yayasu Building in Japan in partnership with NTT East and Mitsui Fudo-san, creating a first external commercialization use of Team Neighbors Technology. In the chain of line works, the number of new paid user IDs greatly increased during Q2, which was driven by securing large-scale deals, further solidifying its number one position in the business messenger market. In April, Global Care Call was officially launched in Japan by entering into an agreement with the city of Izumo and is garnering attention from many local governments and public institutions in the Taiwanese market where we entered in late last year. It was successfully taking roots with more than 100 companies confirming to adopt its services. Next is the detailed cost items. Development and operations expenses increased 15.2% year-on-year with the impact of consolidating WAPLAPOP. Partner expenses rose 22% year-on-year driven by higher commission expenses in line with revenue growth, recognition of content, rights cost, including World Cup and expanded deployment of NPACONNECT devices. Infrastructure expenses increased 11.2% year-on-year, as the effect of a change to useful life was reflected, even amidst continued expansion in computing asset investments. Marketing expenses rose 25.4% year-on-year, driven by strategic marketing investments in the commerce segment, as well as higher promotional spending for NPAY Connect. Amid a rapidly evolving market environment, Naver expects to continue expanding strategic investments in the near term to strengthen competitive positioning in the targeting the offline market through NPAY Connect and to strengthen capabilities for core businesses including commerce and AI-powered advertisements. Ultimately, the company aims for these investments to support revenue growth in its core business and serve as a foundation for long-term growth drivers while contributing to the enhanced shareholder value. Next, I'll explain about Naver's operating profit by business segment. Naver platform segment saw a 4.2 percentage and Ji-hye Kim. In the last two years, we have seen a significant year-on-year decline in operating margin despite solid revenue growth in advertising and commerce, primarily due to increased marketing costs as well as costs related to recognition of IP costs such as the World Cup processing rights. Financial platform segments continue to deliver solid revenue growth in Q2. However, operating margin declined by 4.9% percentage as investment costs necessary for expanding the deployment of connect devices was reflected. In the global growth segment, losses narrowed supported by accelerated growth in the C2C business. Due to consolidated net income increase by 41.6% year-on-year to 704.3 billion KRW, driven by an increase in equity method gains and valuation gains on financial instruments, due to free cash flow decreased by 150 and Seon-joo Kim. In the second half, we expect continued investment for growth, including computing assets like GPUs and CPUs, as well as the rollout of NP-Connect. However, as this year marks peak concentration of market growth, the growth rate-related expense is expected to moderate gradually starting next year. At the same time, as already demonstrated through initiatives like AI briefing advertisements, These investments are expected to generate new revenue streams and drive up top-line growth, progressively contributing to overall financial performance. Lastly, on August 3, Naver retired 4,901,094 Treasury shares, excluding bare minimum needed for granted stock compensation, representing 3.1% of total shares, approximately 1 trillion KRW in volume, to enhance shareholder value. Moving forward, Naver will continue to explore various measures to enhance shareholder value in line with our shareholder return plan and will promptly share any updates with shareholders via public disclosures as decisions are finalized. This concludes the overview of our Q2 financial results and we will now move on to 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 2 per person.

The first question will be provided by Stanley Yang from J.P. Morgan. Please go ahead with your question.