NAVER (035420 KS ) Ad revenue to surprise to the upside in 3Q -4Q20
Internet Smart Channel ads have been selling out since May 18 th , pointing to 3Q20 earnings surprise Company Report After overhauling its mobile layout in 2019, NAVER introduced a number of new May 26, 2020 initiatives to its display ad offerings in 1H20. We expect ad revenue, which has high margins, to grow markedly from 3Q20, driving sharp gains in operating profit.
NAVER’s major changes to display ads include the following: 1) expanding mobile performance-based ads on the Glad for Advertiser (GFA) channel and introducing more (Maintain) Buy sophisticated targeting in February; 2) rolling out “premium” speci al display ads (which are 20% more expensive) and increasing special display ad units (from eight to 10) in Target Price (12M, W) ▲▲▲ 330,000 June -July; and 3) launching a new ad product called Smart Channel (placed at the top of mobile pages) on May 18 th . Share Price (05/25/20, W) 241,000 New ads to generate revenue of over W100bn and OP margin of 80-85% Expected Return 37% We forecast Smart Channel alone to generate at least W100bn in revenue per year. Moreover, we see upside risks to our forecast, given: 1) NAVER’s online shopping market share; 2) synergy effects with NAVER Pay; 3) the widespread adoption of OP (20F, Wbn) 1,065 contactless marketing; and 4) auction-based ad pricing and targeting effects. Consensus OP (20F, Wbn) 983 Our W100bn revenue assumption is a conservative estimate based on the current annual EPS Growth (20F, %) 8.2 revenue of branding display ads, which are placed in the middle of m obile pages. We Market EPS Growth (20F, %) 27.1 think Smart Channel revenue could surpass revenue from special display ads (placed at P/E (20F, x) 62.9 the bottom of the main mobile search page; annual revenue of around W400bn). Market P/E (20F, x) 13.3 KOSPI 1,994.60 NAVER’s display ads do not incur any variable costs tied to revenue, aside from agency commissions. Furthermore, the company already generates enough traffic to cover Market Cap (Wbn) 39,587 fixed costs. Ads are a highly profitable business, with 80-85% of revenue translating Shares Outstanding (mn) 164 into operating profit. Free Float (%) 76.0 Foreign Ownership (%) 57.6 We modeled Smart Channel revenue at W40bn (daily a verage of W220mn) for 2H20 Beta (12M) 0.56 and W100bn (daily average of W270mn) for 2021. We revised up our ad revenue 52-Week Low 108,500 growth forecasts to 15.2% YoY for 3Q20 and 28.0% YoY for 4Q20. Looking to 2021, we 52-Week High 241,000 expect ad revenue to grow 24.7% YoY.
(%) 1M 6M 12M Raise TP to W330,000; Poised to become second most valuable domestic stock Absolute 25.2 38.5 112.3 in the medium term Relative 18.6 47.5 117.7 We raise our target price on NAVER from W241,000 to W330,000. Our SOTP-derived target price represents the sum of the values of the domestic business, NAVER 260 NAVER KOSPI Webtoon, and NAVER Financial, plus the market value of LINE (3938 JP/CP: JPY5,360). 210 While NAVER’s stock has seen a strong rally, we believe expectations on 2H20 earnings 160 and share price momentum have also increased. In 2H20, we expect: 1) the e-commerce 110 segment to continue growth; 2) NAVER Webtoon’s global business to turn a profit; 3) NAVER Financial’s business to gather steam; and 4) ad revenue to surprise on the back of 60 5.19 9.19 1.20 5.20 Smart Channel ads and targeting. We also believe consolidated margin improvements could accelerate once the LINE-Z Holdings (4689 JP/CP: JPY449) merger is finalized in Mirae Asset Daewoo Co., Ltd. October.
[ Internet ] FY (Dec.) 12/17 12/18 12/19 12/20F 12/21F 12/22F Revenue (Wbn) 4,678 5,587 6,593 7,612 8,933 10,542 Chang -kwean Kim +822 -3774 -1614 OP (Wbn) 1,179 943 710 1,065 1,823 2,110 [email protected] OP Margin (%) 25.2 16.9 10.8 14.0 20.4 20.0
NP (Wbn) 773 649 583 629 1,315 1,512 EPS (W) 4,689 3,937 3,538 3,829 8,008 9,203 ROE (%) 18.5 13.0 10.6 10.3 18.8 18.1
P/E (x) 37.1 31.0 52.7 62.9 30.1 26.2 P/B (x) 4.8 3.1 4.3 5.1 4.4 3.8 Dividend Yield (%) 0.2 0.3 0.2 0.2 0.2 0.2 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates
May 26, 2020 NAVER
C O N T E N T S
I. Display ad revenue to level up 3 1. KakaoTalk Bizboard vs. NAVER GFA and Smart Channel 3 2. Expansion of GFA targeted ads in February 4 3. Special display ad pricing and volume to begin rising in June 6 4. Launch of Smart Channel ads in May 9
II. Ad revenue to surge from 3Q20 through 2021 10 1. Lower online ad penetration rate 10 2. Display ad revenue to surge, driven by e-commerce 11
III. Valuation 14 Raise TP to W330,000 14
Mirae Asset Daewoo Research 2 May 26, 2020 NAVER
I. Display ad revenue to level up
1. KakaoTalk Bizboard vs. NAVER GFA and Smart Channel
On May 18 th , NAVER rolled out a new ad offering called Smart Channel at the top of its mobile pages. The ad product has a number of similarities to KakaoTalk Bizboard (TalkBoard), such as the positioning of ads.
In the case of TalkBoard, KakaoTalk acts as an e-commerce marketing platform, with advertisers utilizing KakaoTalk channels. In 4Q19 and 1Q20, Kakao Shopping’s GMV drove overall earnings improvements. NAVER, meanwhile, plans to use its Smart Channel to implement an integrated marketing system that connects the awareness-interest-search- purchase stages to create a seamless ad-search-shopping process.
TalkBoard has seen rapid growth, with the number of advertisers rising to 5,400 and daily average revenue reaching W500mn. While TalkBoard generates a considerable number of impressions and clicks, its ability to convert them into revenue has been somewhat disappointing. We believe NAVER’s Smart Channel revenue will largely hinge on how precisely ads can be targeted. In our view, the two keywords for the online ad market in 2H20 will be online shopping and targeting.
Figure 1. KakaoTalk Bizboard vs. NAVER Smart Channel
Source: Mirae Asset Daewoo Research
Table 1. KakaoTalk Bizboard ads: Monthly revenue 1/19 2/19 3/19 4/19 5/19 6/19 7/19 8/19 9/19 10/19 11/19 12/19 Daily revenue assumption (Wbn) 0.2 0.2 0.2 0.3 0.3 0.4 0.4 0.5 Monthly revenue (Wbn) 5.7 6.3 6.9 7.5 9.0 10.5 12.0 13.5
Total time spent (bn min.) 35.2 30.7 34.8 34.6 36.9 35.1 38.2 37.2 36.5 40.2 39.3 42.1 Revenue/total time spent (W) 0.15 0.18 0.18 0.20 0.25 0.26 0.31 0.32 Source: Nielsen KoreanClick, Mirae Asset Daewoo Research estimates
Mirae Asset Daewoo Research 3 May 26, 2020 NAVER
2. Expansion of GFA targeted ads in February
On February 3 rd , NAVER began expanding mobile performance-based ads on its GFA channel, which is an ad platform that allows advertisers to directly purchase ads online. The company began selling Band ads on the GFA channel in April 2019.
As illustrated in
Because such guarantee-based ads were based on flat-rate models like cost per time (CPT) and cost per mille (CPM), most advertisers were large corporations that could afford to pay tens of millions of won per unit time.
1) The GFA platform offers better accessibility, enabling advertisers to bypass agencies and directly purchase ads.
2) Unlike in the past, when advertisers were charged a flat rate for impressions, advertisers can now choose from a variety of pricing models, such as CPM, cost per click (CPC), and cost per view (CPV). They can also decide how much they want to spend through real-time bidding.
3) GFA’s main feature is that it offers more sophisticated targeting. To date, domestic media firms have been somewhat cautious in providing online ad targeting, which is already widely adopted in other countries. Rivals like YouTube and Kakao (035720 KS/Buy/TP: W280,000/CP: W268,000) have expanded their targeted ad services, and NAVER has also begun selling targeted ads in 1H20.
The GFA platform offers not only demographic targeting (age, gender, etc.) but also behavior/interest targeting based on customer data. The number of interest-targeting categories was expanded from 76 to 235 on May 14 th .
As shown in
We believe the GFA ad platform will help attract smaller advertisers and increase the utilization of targeted ads, supporting strong growth in e-commerce-related ad revenue.
Figure 2. NAVER: Differences between GFA and NOSP
Source: Company materials, Mirae Asset Daewoo Research
Mirae Asset Daewoo Research 4 May 26, 2020 NAVER
Figure 3. GFA helps advertisers convert NAVER users into customers
Source: Company materials, Mirae Asset Daewoo Research
Figure 4. NAVER: GFA ad targeting options
Source: Company materials, Mirae Asset Daewoo Research
Mirae Asset Daewoo Research 5 May 26, 2020 NAVER
3. Special display ad pricing and volume to begin rising in June
1) Launch of premium special display ads
In early 2019, NAVER overhauled its mobile layout
After raising prices for some special display ads in July 2019, NAVER began actively introducing ad targeting in 2020 in an effort to boost display ad revenue by increasing pricing and inventory and enhancing efficiency.
On June 1 st , NAVER will begin offering premium versions of special display ads, which are placed at the bottom of the mobile app search page. There are five types of premium special display ads advertisers can choose from: 1) expandable videos; 2) expandable images; 3) thumbnail videos; 4) horizontal motion; and 5) countdown
These five types of premium ads are more attention-grabbing than the basic version and are priced at a 20% premium
Special display ads (including integrated ads) are NAVER’s main mobile ad products, accounting for 60-70% of mobile ad revenue. They are hugely popular, with a sell-through rate of around 90%. Given their higher pricing, we believe the sale of premium special display ads will provide a huge boost to display ad revenue.
Figure 5. NAVER: Change in ad positioning following mobile overhaul
Source: Mirae Asset Daewoo Research
Mirae Asset Daewoo Research 6 May 26, 2020 NAVER
Figure 6. NAVER: Premium integrated special display ads
Source: Company data, Mirae Asset Daewoo Research
Table 2. NAVER: Integrated special display ads (basic) Details · Top of the news page Location · Bottom of the new main search page · Placed on both pages for integrated special display ad s · Through June 28 th : eight units per three hours per day Selling units · From June 29 th : 10 units per two hours (four hours at night) per day · Two ad creatives can be registered : one existing NAVER special display ad creative and one new Notes NAVER special display ad creative · Only gender targeting is available Source: Company data, Mirae Asset Daewoo Research
Table 3. NAVER: Integrated special display ads (premium) Details · Basic ad placed on the top of the news page Location · Premium ad placed on the new main search page · Placed on both pages for integrated special display ad s Types · Expandable video/expandable image/thumbnail video/horizontal motion/countdown Pricing · 20% premium to basic version · Two creatives can be registered : one existing NAVER special display ad creative and one new NAVER Notes special display ad creative · Only gender targeting is available Source: Company data, Mirae Asset Daewoo Research
Mirae Asset Daewoo Research 7 May 26, 2020 NAVER
2) Changes in selling units and increase in ad inventory
Following the launch of premium special display ads on June 1 st , NAVER plans to increase the number of ad units for both basic and premium ads on June 29 th .
Through June 28 th , there will be eight special display ads available per three hours per day. From June 29 th , 10 special display ads will be sold per two hours (four hours during nighttime) per day. In addition, pricing will differ between weekdays and weekends/holidays.
We expect the increase in ad inventory and changes in selling units and pricing to drive increases in advertiser inflows and ASP th Table 4. Special display ad pricing (effective through June 28 ) (W) Period Until 5/31 6/1 to 6/28 Product type Special DA Basic Special DA Basic Special DA Premium M_Main_Integrated_Special M_Main_Integrated_Special M_Main_Integrated_Special Selling unit DA (previous) DA_Basic DA_Premium 00:00-03:00 26,000,000 26,000,000 31,200,000 03:00-06:00 10,000,000 10,000,000 12,000,000 06:00-09:00 34,000,000 34,000,000 40,800,000 09:00-12:00 51,000,000 N/A 61,200,000 12:00-15:00 56,000,000 56,000,000 67,200,000 15:00-18:00 57,000,000 N/A 68,400,000 18:00-21:00 58,000,000 58,000,000 69,600,000 21:00-24:00 57,000,000 57,000,000 68,400,000 Source: Company data, Mirae Asset Daewoo Research th Table 5. Special display ad pricing (effective June 29 ) (W) Period From 6/29 Product type Special DA Basic Special DA Premium M_Mai n_Integrated_Special M_Main_ Integrated_Special Expected impressions Selling unit DA_Basic ( new) DA_Premium ( new) Day Weekday Weekend Weekday Weekend Weekday Weekend 00:00-04:00 29,000,000 28,000,000 34,800,000 33,600,000 10,000,000-12,200,000 10,900,000-13,300,000 04:00-08:00 24,000,000 16,000,000 28,800,000 19,200,000 9,300,000-11,300,000 6,800,000-8,400,000 08:00-10:00 31,000,000 23,000,000 37,200,000 27,600,000 10,600,000-13,000,000 9,000,000-11,000,000 10:00-12:00 N/A N/A 42,000,000 36,000,000 12,100,000-14,700,000 11,400,000-14,000,000 12:00-14:00 37,000,000 31,000,000 44,400,000 37,200,000 13,100,000-16,000,000 12,200,000-14,900,000 14:00-16:00 37,000,000 31,000,000 44,400,000 37,200,000 12,900,000-15,700,000 12,200,000-14,900,000 16:00-18:00 N/A N/A 46,800,000 39,600,000 13,400,000-16,400,000 12,600,000-15,400,000 18:00-20:00 39,000,000 33,000,000 46,800,000 39,600,000 13,500,000-16,500,000 12,900,000-15,700,000 20:00-22:00 38,000,000 35,000,000 45,600,000 42,000,000 13,300,000-16,300,000 13,700,000-16,700,000 22:00-24:00 35,000,000 32,000,000 42,000,000 38,400,000 12,200,000-15,000,000 12,300,000-15,100,000 Source: Company data, Mirae Asset Daewoo Research Mirae Asset Daewoo Research 8 May 26, 2020 NAVER 4. Launch of Smart Channel ads in May On May 18 th , NAVER launched an open beta version of its new Smart Channel ads, which are placed at the top of the news, entertainment, and sports mobile pages. The new ads were added to the existing branding display ads, which are located in the middle of the mobile pages. Not only are Smart Channel ads highly noticeable due to their positioning, they also have several advantages in terms of 1) advertiser pool, 2) pricing, 3) charging methods, and 4) targeting functions, which can have a positive impact on revenue. Unlike NAVER’s existing mobile banner ads, which are sold on a CPM basis (via NOSP; preferred by large corporations), Smart Channel ads can be purchased on both the NOSP and performance-based GFA (CPC) platforms. A single ad on the guarantee-based NOSP (CPM) platform starts at millions of won, making it less accessible to small businesses or independent online shopping sites. In contrast, with a minimum bidding price of W10, the CPC model allows even advertisers with small budgets to place ads. As we outlined earlier, advertisers that buy ads on the performance-based GFA platform can limit their ad exposure to a targeted audience and can also combine their own customer data for targeted exposure. Given these features, we believe Smart Channel ads will help attract advertisers related to e- commerce. Through Smart Channel ads, advertisers can narrow their reach to NAVER users that have a higher likelihood of purchasing their products, as well as repeatedly expose interested users to alternative products to elicit purchases. We think Smart Channel ad revenue will depend on how effective the ads are in proportion to how much advertisers spend. From the standpoint of advertisers, the precision of the ad targeting data provided by NAVER and the scope of targeting available to them will likely be as important as the competitiveness of their products. Figure 7. NAVER: Smart Channel ads Source: Company data, Mirae Asset Daewoo Research Mirae Asset Daewoo Research 9 May 26, 2020 NAVER II. Ad revenue to surge from 3Q20 through 2021 1. Lower online ad penetration rate We believe banner ad sales to large corporations have been dwindling since mid-February due to the COVID-19 outbreak. However, as confirmed by NAVER’s and Kakao’s 1Q20 earnings results, e-commerce transaction volume has been growing sharply, and contactless marketing activities have also been robust. At this point, the 2020 outlook for the online ad market remains unclear. While consumer spending looks likely to weaken further from 2Q20, it is difficult to tell how the rapid growth of e-commerce will affect the online ad market. However, we expect NAVER’s Smart Channel ads and Kakao’s TalkBoard ads to see strong growth in 2020 and 2021 for two reasons. First, as seen in Figure 8. Domestic online ad market size and growth rate (Wtr) (%) 8 Domestic online ad market (L) YoY growth (R) 30 25 6 20 4 15 10 2 5 0 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F Source: Korea Online Ad Association, Mirae Asset Daewoo Research Figure 9. 2019 global online ad penetration (%) 70 67 65 60 53 50 50 47 40 35 30 20 UK Germany China US Korea Japan Source: ZenithOptimedia, KOBACO, Mirae Asset Daewoo Research Mirae Asset Daewoo Research 10 May 26, 2020 NAVER 2. Display ad revenue to surge, driven by e-commerce Starting in May, we expect the ad price bidding system and targeting—which have already proven successful for Kakao’s TalkBoard—to drive NAVER’s earnings outlook and share price. As On average, successful targeting leads to threefold increases in ad prices and advertiser count. We forecast Smart Channel alone to generate at least W100bn in revenue per year. We modeled Smart Channel revenue at W40bn (daily average of W220mn) for 2H20 and W100bn (daily average of W270mn) for 2021. We revised up our ad revenue growth forecasts to 15.2% YoY for 3Q20 and 28.0% YoY for 4Q20. Looking to 2021, we expect ad revenue to grow 24.7% YoY. Figure 10. Facebook: Mobile ad revenue vs. share price (US$) (US$mn) 140 Mobile ad revenue (R) 5,000 Share price (L) 4,500 120 4,000 100 3,500 3,000 80 2,500 60 2,000 40 1,500 1,000 20 500 0 0 1/12 7/12 1/13 7/13 1/14 7/14 1/15 7/15 1/16 Source: Facebook, Mirae Asset Daewoo Research Table 6. Facebook: Revenue following introduction of mobile ads (US$mn, %) 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 Revenue 1,058 1,184 1,262 1,585 1,458 1,813 2,016 2,585 2,502 2,910 3,203 3,851 3,543 4,042 4,501 5,841 Advertising 872 992 1,086 1,329 1,246 1,599 1,798 2,339 2,265 2,676 2,957 3,594 3,317 3,827 4,299 5,637 PC 834 962 934 1,023 872 943 917 1,099 929 1,017 1,005 1,114 896 918 946 1,127 Mobile 38 30 152 306 374 656 881 1,240 1,336 1,659 1,952 2,480 2,421 2,909 3,353 4,510 Other 186 192 176 256 213 214 218 241 237 234 246 257 226 215 202 204 Contribution Advertising 82.4 83.8 86.1 83.8 85.5 88.2 89.2 90.5 90.5 92.0 92.3 93.3 93.6 94.7 95.5 96.5 PC 78.8 81.3 74.0 64.5 59.8 52.0 45.5 42.5 37.1 34.9 31.4 28.9 25.3 22.7 21.0 19.3 Mobile 3.6 2.5 12.0 19.3 25.7 36.2 43.7 48.0 53.4 57.0 60.9 64.4 68.3 72.0 74.5 77.2 Other 17.6 16.2 13.9 16.2 14.6 11.8 10.8 9.3 9.5 8.0 7.7 6.7 6.4 5.3 4.5 3.5 Source: Facebook, Mirae Asset Daewoo Research Mirae Asset Daewoo Research 11 May 26, 2020 NAVER Table 7. NAVER: Quarterly and annual ad revenue 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20F 3Q20F 4Q20F 2017 2018 2019 2020F Ad revenue (Wbn) 133 149 136 155 142 167 153 172 144 169 176 220 461 573 633 709 Total time spent (bn min.) 86 87 85 83 83 82 83 81 89 90 91 88 332 342 329 358 Ad revenue/time spent (W) 1.5 1.7 1.6 1.9 1.7 2.0 1.8 2.1 1.6 1.9 1.9 2.5 1.4 1.7 1.9 2.0 YoY 30% 20% 18% 16% 12% 19% 15% 13% -6% -7% 5% 18% 20% 15% 3% QoQ -4% 11% -6% 17% -8% 17% -9% 15% -24% 16% 3% 29% Source: Nielsen KoreanClick, Mirae Asset Daewoo Research estimates Table 8. NAVER: Quarterly and annual mobile display ad revenue 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20F 3Q20F 4Q20F 2017 2018 2019 2020F Ad revenue (Wbn) 133 149 136 155 142 167 153 172 144 169 176 220 461 573 633 709 Mobile display ad revenue (Wbn) 65 73 67 76 70 82 75 84 71 83 86 108 226 281 310 347 Mobile total time spent (bn min.) 63 63 62 60 60 58 61 61 69 70 71 68 227 247 241 278 Mobile d isplay ad revenue/time 1.0 1.2 1.1 1.3 1.2 1.4 1.2 1.4 1.0 1.2 1.2 1.6 1.0 1.1 1.3 1.2 spent (W) YoY 21% 13% 12% 14% 11% 20% 14% 9% -12% -15% -1% 14% 14% 13% -3% QoQ -7% 12% -7% 18% -9% 21% -12% 12% -26% 16% 3% 29% Source: Nielsen KoreanClick, Mirae Asset Daewoo Research estimates Table 9. NAVER: Quarterly and annual business platform revenue 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20F 3Q20F 4Q20F 2017 2018 2019 2020F Business platform revenue (Wbn) 593 612 613 659 669 716 719 747 750 782 806 840 2153 2476 2851 3178 Total time spent (bn min.) 86 87 85 83 83 82 83 81 89 90 91 88 332 342 329 358 Business platform revenue/time 6.9 7.0 7.2 7.9 8.1 8.7 8.6 9.2 8.4 8.7 8.9 9.5 6.5 7.2 8.7 8.9 spent (W) YoY 13% 11% 10% 11% 18% 24% 21% 16% 4% 0% 2% 4% 11% 20% 2% QoQ -4% 2% 3% 11% 2% 7% -1% 6% -8% 3% 2% 8% Source: Nielsen KoreanClick, Mirae Asset Daewoo Research estimates Table 10. NAVER: Quarterly and annual business platform revenue per query 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20F 3Q20F 4Q20F 2017 2018 2019 2020F Business platform revenue (Wbn) 593 612 613 659 669 716 719 747 750 782 806 840 2153 2476 2851 3178 Total no. of queries (bn) 24.5 23.6 23.0 22.0 22.2 21.6 22.2 22.0 24 26 28 29 89.9 93.1 88.0 107 Business platform revenue/total no. of 24.2 25.9 26.7 29.9 30.2 33.1 32.3 34.0 31.2 30.0 28.8 29.3 24.0 26.6 32.4 29.8 queries (W) YoY 13% 11% 8% 12% 25% 28% 21% 14% 4% -9% -11% -14% 11% 22% -8% QoQ -9% 7% 3% 12% 1% 10% -2% 5% -8% -4% -4% 2% Source: Nielsen KoreanClick, Mirae Asset Daewoo Research estimates Mirae Asset Daewoo Research 12 May 26, 2020 NAVER Table 11. NAVER: Quarterly and annual earnings (Wbn, %) 1Q19 2Q19 3Q19 4Q19 1Q20F 2Q20F 3Q20F 4Q20F 2018 2019 2020F 2021F Revenue 1,511 1,630 1,665 1,787 1,732 1,840 1,938 2,103 5,587 6,593 7,612 8,933 Advertising 142 167 153 172 144 169 176 220 573 633 709 884 Business platform 669 716 719 747 750 782 806 840 2,476 2,851 3,178 3,492 IT platform 99 106 116 136 148 162 174 193 356 457 677 934 Content 35 50 55 70 55 61 72 88 126 210 276 385 LINE/other 565 592 622 663 635 666 710 762 2,056 2,442 2,773 3,238 Operating profit 206 128 202 173 222 244 276 323 942 710 1,065 1,823 OP margin 13.6 7.9 12.1 9.7 12.8 13.3 14.3 15.4 16.9 10.8 14.0 20.4 Net profit 91 28 85 197 135 148 149 194 624 400 626 1,309 Net margin 6.0 1.7 5.1 11.0 7.8 8.1 7.7 9.2 11.2 6.1 8.2 14.7 YoY growth Revenue 15.4 19.6 19.1 17.9 14.6 12.8 16.4 17.6 19.4 18.0 15.5 17.3 Advertising 6.8 12.0 12.2 10.8 1.3 1.4 15.2 28.0 8.2 10.5 11.9 24.7 Business platform 12.9 17.1 17.3 13.4 12.0 9.2 12.0 12.6 14.7 15.2 11.5 9.9 IT platform 36.8 22.6 27.2 28.8 49.4 52.7 49.7 41.8 63.4 28.5 48.0 38.0 Content 18.2 61.6 64.2 118.4 58.3 21.7 31.7 25.6 20.4 66.5 31.7 39.6 LINE/other 17.5 21.8 18.7 17.3 12.3 12.5 14.2 14.9 23.2 18.8 13.6 16.8 Operating profit -19.8 -48.8 -8.8 -18.7 7.4 90.4 36.7 86.2 -20.1 -24.7 50.0 71.2 Net profit -40.9 -90.2 24.9 63.9 48.3 438.3 74.2 -1.3 -19.0 -35.8 56.3 109.2 Note: LINE is likely to be excluded from NAVER’s consolidated earnings from October 2020 (May or June 2020 at the earliest). Source: Company data, Mirae Asset Daewoo Research estimates Table 12. NAVER: Earnings forecast revisions (Wbn, %) Previous Revised %chg. Notes 2020F 2021F 2020F 2021F 2020F 2021F Revenue 7,572 8,788 7,612 8,933 0.5 1.6 Operating profit 1,051 1,705 1,065 1,823 1.3 6.9 Net profit 616 1,223 626 1,309 1.5 7.0 OP margin 13.9 19.4 14.0 20.4 - - Net margin 8.1 13.9 8.2 14.7 - - Source: Mirae Asset Daewoo Research estimates Mirae Asset Daewoo Research 13 May 26, 2020 NAVER III. Valuation Raise TP to W330,000 We raise our target price on NAVER from W241,000 to W330,000. Our SOTP-derived target price represents the sum of the values of the domestic business, NAVER Webtoon, and NAVER Financial, plus the market value of LINE. We raised our target price, as: 1) we revised up our projections for parent-based earnings; 2) the firm’s valuation has expanded following the recent share price increases of domestic and overseas peers; and 3) we reflected the value of NAVER Financial in our earnings estimates, as the company’s businesses have started to take shape (upcoming release of NAVER Bankbook). While NAVER shares have already seen a strong rally, we believe expectations on 2H20 earnings and share price momentum have also increased. In 2H20, we expect: 1) the e- commerce segment to continue growth; 2) NAVER Webtoon’s global business to turn a profit; 3) NAVER Financial’s businesses to gather steam; and 4) ad revenue to surprise on the back of Smart Channel ads and targeting. We also believe consolidated margin improvements could accelerate once the LINE-Z Holdings merger is finalized in October. In 2H20, growing expectations for the firm’s global businesses (following the merger) will likely give another boost to the stock. From 2021, SoftBank (9984 JP/CP: JPY4,607), NAVER, Yahoo Japan, and LINE are widely anticipated to lead growth of the fintech business in Asia ex-China. Table 13. NAVER: Parent earnings and forecasts (Wbn, %) 2014 2015 2016 2017 2018 2019 2020F 2021F Revenue 1,637 2,141 2,496 2,931 3,459 3,900 4,334 4,900 Operating profit 712 826 968 1,178 1,264 1,394 1,601 1,869 OP margin 43.5 38.6 38.8 40.2 36.5 35.7 36.9 38.1 Net profit 461 643 652 849 919 1,093 1,272 1,353 YoY growth Revenue 30.8 16.6 17.4 18.0 12.7 11.1 13.1 Operating profit 16.1 17.2 21.7 7.2 10.3 14.9 16.7 Net profit 39.5 1.4 30.3 8.2 18.9 16.6 6.2 Source: Company data, Mirae Asset Daewoo Research estimates Table 14. NAVER: SOTP valuation (Wbn, x, W) Section 2020F Notes NAVER parent value (1) Net profit 1,272 Weighted average P/E of global peers (ads: Alphabet, Facebook, Baidu, Yahoo Fair P/E 29.9 Japan; e -commerce: Amazon, Alibaba, eBay) Fair value 37,977 Value of domestic NAVER portal (based on 2020F net profit) LINE value (2) LINE market cap 14,817 Value of shares on the Japanese stock market NAVER's stake in LINE 72.86% Fair value 8,637 20% discount to the value of NAVER's stake in LINE NAVER Webtoon value (3) 5,723 Target P/S of 7x (valuation of Mirae Asset Daewoo ’s media analyst) NAVER's stake in NAVER Webtoon 100% Based on 2020-21F avg. transaction value NAVER Financial value (4) 2,700 Based on Mirae Asset Group’s investment NAVER's stake in NAVER Financial 70% Fair value 1,890 Sum = (1) + (2) + (3) + )4) 54,226 TP 330,000 Source: Bloomberg, Mirae Asset Daewoo Research estimates Mirae Asset Daewoo Research 14 May 26, 2020 NAVER NAVER (035420 KS/Buy/TP: W330,000) Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/19 12/20F 12/21F 12/22F (Wbn) 12/19 12/20F 12/21F 12/22F Revenue 6,593 7,612 8,933 10,542 Current Assets 5,644 6,874 8,841 11,030 Cost of Sales 0 0 0 0 Cash and Cash Equivalents 3,741 4,402 5,951 7,632 Gross Profit 6,593 7,612 8,933 10,542 AR & Other Receivables 0 285 335 395 SG&A Expenses 5,883 6,548 7,110 8,432 Inventories 55 64 75 88 Operating Profit (Adj) 710 1,065 1,823 2,110 Other Current Assets 1,848 2,123 2,480 2,915 Operating Profit 710 1,065 1,823 2,110 Non-Current Assets 6,656 6,545 6,608 6,813 Non-Operating Profit 157 -27 13 3 Investments in Associates 1,558 1,799 2,111 2,491 Net Financial Income -18 -27 -22 -16 Property, Plant and Equipment 1,596 1,270 1,039 875 Net Gain from Inv in Associates -64 0 0 0 Intangible Assets 341 312 290 272 Pretax Profit 867 1,038 1,836 2,113 Total Assets 12,300 13,419 15,448 17,843 Income Tax 466 412 527 608 Current Liabilities 3,773 4,220 4,863 5,647 Profit from Continuing Operations 400 626 1,309 1,505 AP & Other Payables 759 876 1,028 1,213 Profit from Discontinued Operations -4 0 0 0 Short-Term Financial Liabilities 729 705 739 780 Net Profit 397 626 1,309 1,505 Other Current Liabilities 2,285 2,639 3,096 3,654 Controlling Interests 583 629 1,315 1,512 Non-Current Liabilities 2,022 2,124 2,255 2,416 Non-Controlling Interests -186 -3 -6 -7 Long-Term Financial Liabilities 1,358 1,366 1,366 1,366 Total Comprehensive Profit 536 626 1,309 1,505 Other Non-Current Liabilities 664 758 889 1,050 Controlling Interests 660 771 1,612 1,853 Total Liabilities 5,796 6,344 7,118 8,063 Non-Controlling Interests -124 -145 -303 -348 Controlling Interests 5,805 6,380 7,640 9,097 EBITDA 1,208 1,420 2,077 2,291 Capital Stock 16 16 16 16 FCF (Free Cash Flow) 921 1,034 1,950 2,158 Capital Surplus 1,575 1,575 1,575 1,575 EBITDA Margin (%) 18.3 18.7 23.3 21.7 Retained Earnings 5,712 6,287 7,547 9,004 Operating Profit Margin (%) 10.8 14.0 20.4 20.0 Non-Controlling Interests 699 696 690 683 Net Profit Margin (%) 8.8 8.3 14.7 14.3 Stockholders' Equity 6,504 7,076 8,330 9,780 Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/19 12/20F 12/21F 12/22F 12/19 12/20F 12/21F 12/22F Cash Flows from Op Activities 1,357 1,034 1,950 2,158 P/E (x) 52.7 62.9 30.1 26.2 Net Profit 397 626 1,309 1,505 P/CF (x) 24.2 28.3 18.9 17.3 Non-Cash Income and Expense 873 773 782 785 P/B (x) 4.3 5.1 4.4 3.8 Depreciation 460 326 231 164 EV/EBITDA (x) 24.4 26.4 17.3 14.9 Amortization 38 29 23 17 EPS (W) 3,538 3,829 8,008 9,203 Others 375 418 528 604 CFPS (W) 7,702 8,513 12,729 13,940 Chg in Working Capital 567 52 387 472 BPS (W) 43,659 47,303 54,978 63,848 Chg in AR & Other Receivables -56 0 0 0 DPS (W) 376 376 376 376 Chg in Inventories 0 -9 -11 -13 Payout ratio (%) 13.8 8.7 4.2 3.6 Chg in AP & Other Payables 178 0 0 0 Dividend Yield (%) 0.2 0.2 0.2 0.2 Income Tax Paid -478 -411 -527 -608 Revenue Growth (%) 18.0 15.5 17.4 18.0 Cash Flows from Inv Activities -1,078 -53 -68 -83 EBITDA Growth (%) 0.3 17.5 46.3 10.3 Chg in PP&E -429 0 0 0 Operating Profit Growth (%) -24.7 50.0 71.2 15.7 Chg in Intangible Assets -71 0 0 0 EPS Growth (%) -10.1 8.2 109.1 14.9 Chg in Financial Assets 180 -53 -68 -83 Accounts Receivable Turnover (x) 22.5 0.0 0.0 0.0 Others -758 0 0 0 Inventory Turnover (x) 117.2 128.2 129.2 129.5 Cash Flows from Fin Activities 52 -79 -21 -13 Accounts Payable Turnover (x) 0.0 0.0 0.0 0.0 Chg in Financial Liabilities 925 -24 34 41 ROA (%) 3.6 4.9 9.1 9.0 Chg in Equity 34 0 0 0 ROE (%) 10.6 10.3 18.8 18.1 Dividends Paid -47 -55 -55 -55 ROIC (%) 29.4 58.8 186.1 736.4 Others -860 0 0 1 Liability to Equity Ratio (%) 89.1 89.7 85.5 82.4 Increase (Decrease) in Cash 418 662 1,549 1,681 Current Ratio (%) 149.6 162.9 181.8 195.3 Beginning Balance 3,323 3,741 4,402 5,951 Net Debt to Equity Ratio (%) -30.3 -39.1 -52.1 -62.0 Ending Balance 3,741 4,402 5,951 7,632 Interest Coverage Ratio (x) 20.4 23.9 40.9 46.5 Source: Company data, Mirae Asset Daewoo Research estimates Mirae Asset Daewoo Research 15 May 26, 2020 NAVER APPENDIX 1 Important Disclosures & Disclaimers 2-Year Rating and Target Price History Company (Code) Date Rating Target Price (W) NAVER NAVER (035420) 05/25/2020 Buy 330,000 400,000 11/26/2019 Buy 241,000 09/17/2019 Buy 230,000 300,000 08/11/2019 Buy 181,000 07/16/2019 Buy 172,000 200,000 01/23/2019 Buy 176,000 100,000 11/26/2018 Buy 141,000 08/27/2018 No Coverage 0 04/26/2018 Buy 200,000 May 18 May 19 May 20 Stock Ratings Industry Ratings Buy : Relative performance of 20% or greater Overweight : Fundamentals are favorable or improving Trading Buy : Relative performance of 10% or greater, but with volatility Neutral : Fundamentals are steady without any material changes Hold : Relative performance of -10% and 10% Underweight : Fundamentals are unfavorable or worsening Sell : Relative performance of -10% Ratings and Target Price History (Share price (─), Target price (▬), Not covered ( ■), Buy (▲), Trading Buy (■), Hold (●), Sell ( ◆)) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Mirae Asset Daewoo Co., Ltd., we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst’s estimate of future earnings. * The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions. Equity Ratings Distribution & Investment Banking Services Buy Trading Buy Hold Sell Equity Ratings Distribution 82.04% 12.57% 5.39% 0.00% Investment Banking Services 80.77% 11.54% 7.69% 0.00% * Based on recommendations in the last 12-months (as of March 31, 2020) Disclosures As of the publication date, Mirae Asset Daewoo Co., Ltd. and/or its affiliates own 1% or more of NAVER`s shares outstanding. As of the publication date, Mirae Asset Daewoo Co., Ltd. has acted as a liquidity provider for equity-linked warrants backed by share s of NAVER as an underlying asset; other than this, Mirae Asset Daewoo has no other special interests in the covered companies. Analyst Certification The research analysts who prepared this report (the “Analysts”) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws or regulations thereof. Each Analyst responsible for the preparation of this report certifies that (i) all views expressed in this report accurately reflect the personal views of the Analyst about any and all of the issuers and securities named in this report and (ii) no part of the compensation of the Analyst was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report. Mirae Asset Daewoo Co., Ltd. (“Mirae Asset Daewoo”) policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst’s area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. Like all employees of Mirae Asset Daewoo, the Analysts receive compensation that is determined by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Mirae Asset Daewoo except as otherwise stated herein. Disclaimers This report was prepared by Mirae Asset Daewoo, a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange. Information and opinions contained herein have been compiled in good faith and from sources believed to be reliable, but such information has not been independently verified and Mirae Asset Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Korean language. In case of an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws or regulations or subject Mirae Asset Daewoo or any of its affiliates to registration or licensing requirements in any jurisdiction shall receive or make any use hereof. This report is for general information purposes only and it is not and shall not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The report does not constitute investment advice to any person and such person shall not be treated as a Mirae Asset Daewoo Research 16 May 26, 2020 NAVER client of Mirae Asset Daewoo by virtue of receiving this report. This report does not take into account the particular investment objectives, financial situations, or needs of individual clients. The report is not to be relied upon in substitution for the exercise of independent judgment. Information and opinions contained herein are as of the date hereof and are subject to change without notice. The price and value of the investments referred to in this report and the income from them may depreciate or appreciate, and investors may incur losses on investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. Mirae Asset Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising out of the use hereof. Mirae Asset Daewoo may have issued other reports that are inconsistent with, and reach different conclusions from, the opinions presented in this report. The reports may reflect different assumptions, views and analytical methods of the analysts who prepared them. Mirae Asset Daewoo may make investment decisions that are inconsistent with the opinions and views expressed in this research report. Mirae Asset Daewoo, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Mirae Asset Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. No part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Mirae Asset Daewoo. Distribution United Kingdom: This report is being distributed by Mirae Asset Securities (UK) Ltd. in the United Kingdom only to (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”), and (ii) high net worth companies and other persons to whom it may lawfully be communicated, falling within Article 49(2)(A) to (E) of the Order (all such persons together being referred to as “Relevant Persons”). This report is directed only at Relevant Persons. Any person who is not a Relevant Person should not act or rely on this report or any of its contents. United States: Mirae Asset Daewoo is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This report is distributed in the U.S. by Mirae Asset Securities (USA) Inc., a member of FINRA/SIPC, to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934, as amended. All U.S. persons that receive this document by their acceptance hereof represent and warrant that they are a major U.S. institutional investor and have not received this report under any express or implied understanding that they will direct commission income to Mirae Asset Daewoo or its affiliates. Any U.S. recipient of this document wishing to effect a transaction in any securities discussed herein should contact and place orders with Mirae Asset Securities (USA) Inc. Mirae Asset Securities (USA) Inc. accepts responsibility for the contents of this report in the U.S., subject to the terms hereof, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through Mirae Asset Daewoo. The securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements. Hong Kong: This report is distributed in Hong Kong by Mirae Asset Securities (HK) Limited, which is regulated by the Hong Kong Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person. All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Mirae Asset Daewoo or its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Mirae Asset Daewoo and its affiliates to any registration or licensing requirement within such jurisdiction. Mirae Asset Daewoo Research 17 May 26, 2020 NAVER Mirae Asset Daewoo International Network Mirae Asset Daewoo Co., Ltd. (Seoul) Mirae Asset Securities (HK) Ltd. Mirae Asset Securities (UK) Ltd. Global Equity Sales Team Units 8501, 8507-8508, 85/F 41st Floor, Tower 42 Mirae Asset Center 1 Building International Commerce Centre 25 Old Broad Street, 26 Eulji-ro 5-gil, Jung-gu, Seoul 04539 1 Austin Road West London EC2N 1HQ Korea Kowloon United Kingdom Hong Kong Tel: 82-2-3774-2124 Tel: 852-2845-6332 Tel: 44-20-7982-8000 Mirae Asset Securities (USA) Inc. Mirae Asset Wealth Management (USA) Inc. Mirae Asset Wealth Management (Brazil) CCTVM 810 Seventh Avenue, 37th Floor 555 S. Flower Street, Suite 4410, Rua Funchal, 418, 18th Floor, E-Tower Building Vila New York, NY 10019 Los Angeles, California 90071 Olimpia USA USA Sao Paulo - SP 04551-060 Brasil Tel: 1-212-407-1000 Tel: 1-213-262-3807 Tel: 55-11-2789-2100 PT. Mirae Asset Sekuritas Indonesia Mirae Asset Securities (Singapore) Pte. Ltd. Mirae Asset Securities (Vietnam) LLC Equity Tower Building Lt. 50 6 Battery Road, #11-01 7F, Saigon Royal Building Sudirman Central Business District Singapore 049909 91 Pasteur St. Jl. Jend. Sudirman, Kav. 52 -53 Jakarta Selatan Republic of Singapore District 1, Ben Nghe Ward, Ho Chi Minh City 12190 Vietnam Indonesia Tel: 62-21-515-3281 Tel: 65-6671-9845 Tel: 84-8-3911-0633 (ext.110) Mirae Asset Securities Mongolia UTsK LLC Mirae Asset Investment Advisory (Beijing) Co., Ltd Beijing Representative Office #406, Blue Sky Tower, Peace Avenue 17 2401B, 24th Floor, East Tower, Twin Towers 2401A, 24th Floor, East Tower, Twin Towers 1 Khoroo, Sukhbaatar District B12 Jianguomenwai Avenue, Chaoyang District B12 Jianguomenwai Avenue, Chaoyang District Ulaanbaatar 14240 Beijing 100022 Beijing 100022 Mongolia China China Tel: 976-7011-0806 Tel: 86-10-6567-9699 Tel: 86-10-6567-9699 (ext. 3300) Shanghai Representative Office Ho Chi Minh Representative Office 38T31, 38F, Shanghai World Financial Center 7F, Saigon Royal Building 100 Century Avenue, Pudong New Area Shanghai 91 Pasteur St. 200120 District 1, Ben Nghe Ward, Ho Chi Minh City China Vietnam Tel: 86-21-5013-6392 Tel: 84-8-3910-7715 Mirae Asset Daewoo Research 18 , basic ads will not be available during the prime-time hours of 9:00-12:00 and 15:00-18:00 through June 28 th . As shown in
, only the premium version will be available during the prime-time hours of 10:00-12:00 and 16:00-18:00 from June 29 th .