March 8, 2012 Industry Report
Mobile Internet
Daewoo Securities Co., Ltd. January traffic: NHN, Daum, and KakaoTalk led the way Chang-kwean Kim +822-768-4321 The mobile internet market is growing [email protected]
Mobile internet traffic data for the month of January confirmed that the mobile Jee-hyun Moon segment has become oligopolistic. However, monetization models for the segment +822-768-3615 [email protected] have just begun to take shape. This stands in sharp contrast to the situation in the PC internet segment, which already has well-established monetization models (e.g., display ads, search ads, and online games).
We originally expected that innovative services, globally-popular social network services (e.g., Facebook), and social network games (e.g. CityVille, FarmVille) would create new trends in the mobile internet market. However, domestic mobile internet traffic has showed similar patterns to PC traffic thus far.
It remains to be seen which model will become the key determinant for revenues. However, as the pace of development for mobile internet-related models has been picking up since early 2012, investors should keep tabs on related traffic.
NHN topped the list of January mobile page views; Daum was the runner-up In January, NHN (naver.com) ranked first in terms of mobile page views (via both mobile website and apps), followed by Daum Communications (daum.net). And KakaoTalk (a messenger service) remained the overall leader in terms of duration. Among search services, NHN held the largest market share (58.8%) in terms of time spent, followed by Google (21.8%) and Daum (17.2%).
Focus on NHN’s mobile search ad growth NHN (035420 KS) is our top pick for the mobile internet segment, as the company is highly likely to secure solid monetization models (e.g., mobile search ads). Indeed, Naver JapanÊs Line messenger service is becoming increasingly popular. The number of unique users of the service (via both mobile devices and PCs) has reached 32mn thus far in March.
Top Android phone sites and apps in January (Â000 people, %, min., days, Â000 views) Rank Domain Combined unique visitors Reach rate Average duration Average frequency Page views 1 android.com 11,571 97.6 839 16.1 2,274 2 kakao.com 11,300 95.3 837 18.5 934 3 naver.com 11,056 93.2 396 15.2 2,234,820 4 google.com 10,072 84.9 27 5.6 61,094 5 daum.net 9,147 77.1 241 9.9 2,078,335 6 google.co.kr 7,798 65.8 16 6.3 202,045 7 youtube.com 7,351 62.0 62 3.6 20,572 8 nate.com 7,028 59.3 164 7.1 694,403 9 samsung.com 6,528 55.1 649 18.0 1,629 10 tstore.co.kr 5,792 48.8 54 5.4 10,268 11 tistory.com 5,570 47.0 12 3.5 65,213 12 facebook.com 5,210 43.9 151 9.5 30,623 13 ahnlab.com 5,116 43.1 133 6.1 58 14 cyworld.com 4,569 38.5 95 8.2 32,690 15 olleh.com 4,345 36.6 118 6.9 28,001 Note: Above data is based on Android phone users in January 2012 / Source: Nielsen Koreanclick, KDB Daewoo Securities Research
Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. March 8, 2012 Mobile Internet
Internet share prices are correlated with traffic
NHNÊs strong share and When analyzing an internet company, one must begin by studying all of the relevant traffic earnings performances data. Indeed, NHNÊs strong share and earnings performances over the past ten years are over the past ten years best explained by the rapid growth of the companyÊs PC internet search page views (see are largely attributable to Figure 1). the rapid growth of its Internet companies need to attract solid traffic in order to generate revenues from their PC internet search page online advertising, e-commerce, and game businesses. Traffic is the most important metric views for assessing the influence of websites and setting ad rates (like viewer ratings in the TV industry). Advertisers are always looking for cost-efficient ways to reach potential consumers, and, as such, they usually only place costly ads on popular sites.
So far, NHNÊs growth has been driven by: 1) the success of its new services (e.g., the Knowledge IN service and the game ShinMatgo) and 2) traffic growth resulting from market share expansion at established services.
Market share expansion is attributable to: 1) NHNÊs new pricing policies and 2) the companyÊs introduction of new pricing models (e.g., cost-per-click for search ads). NHN has hiked or cut its ad rates in line with market conditions.
Since 2003, NHNÊs search business has significantly outperformed those of its competitors on the back of its engineÊs superiority and the huge success of Knowledge IN (launched in October 2002). NHNÊs search serviceÊs page views expanded 42.7% in 2005 and 35.1% in 2006. Market share expansion at the Knowledge IN, online community service, and blog businesses also played a part.
In January 2012, NHN recorded a domestic market share of 77.2% (in terms of PC search duration), vs. 16.1% for Daum Communications and 3.0% for SK Communications.
Figure 1. NaverÊs PC search traffic growth (in terms of page views)
(bnPV) P uptrend: 8 July 2004: Added more CPC CPM → CPT Introduced Q uptrend: Overture's CPC Traffic increased in cafe, blog and mail 6 2004: Strengthened news service
4 Dec 2003: Knowledge Shopping naver.com daum.net yahoo.co.kr google.co.kr Oct 2002: 2 Knowledge IN
0 02 03 04 05 06 07 08 09 10 11 12
Source: Nielsen Koreanclick, KDB Daewoo Securities Research
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Mobile service traffic (apps and websites)
Naver and Daum far The January traffic ranking for mobile websites and apps (Android-based smartphones, the surpass their rivals in number of unique visitors) is as follows: 1) Android.com, 2) Kakao.com, 3) Naver.com, 4) terms of page views; Google.com and 5) Daum.net. There was not a big difference between Naver.comÊs (the first rank, 11.57mn) and Daum.netÊs (the fifth rank, 9.14mn) monthly unique visitors. In terms of monthly page views, however, the gap was much wider, with top rankers Naver.com and Daum.net each reporting 2.23bn and 2.07bn page views, while Nate.com, which came in third, posted a meager 690mn page views. In terms of the reach rate (the percentage of smartphone users who accessed the service), Android.com ranked first with a whopping 97.6%, followed by Kakao.comÊs 95.3%, and Naver.comÊs 93.2%. January mobile app traffic confirmed that the top three players - Android.com, Kakao.com and Google.com – were unrivalled in attracting unique visitors. As for mobile website traffic (internet access via web browsers), portal sites Naver and Daum came in first and second, respectively. Table 1. Top Android phone sites and apps (Â000 people, %, min., days, Â000 views) Combined unique Average duration Average Rank Domain Reach rate Page views visitors (R) frequency 1 android.com 11,571 97.6 839 16.1 2,274 2 kakao.com 11,300 95.3 837 18.5 934 3 naver.com 11,056 93.2 396 15.2 2,234,820 4 google.com 10,072 84.9 27 5.6 61,094 5 daum.net 9,147 77.1 241 9.9 2,078,335 6 google.co.kr 7,798 65.8 16 6.3 202,045 7 youtube.com 7,351 62.0 62 3.6 20,572 8 nate.com 7,028 59.3 164 7.1 694,403 9 samsung.com 6,528 55.1 649 18.0 1,629 10 tstore.co.kr 5,792 48.8 54 5.4 10,268 11 tistory.com 5,570 47.0 12 3.5 65,213 12 facebook.com 5,210 43.9 151 9.5 30,623 13 ahnlab.com 5,116 43.1 133 6.1 58 14 cyworld.com 4,569 38.5 95 8.2 32,690 15 olleh.com 4,345 36.6 118 6.9 28,001 Note: Above data is based on Android phone users in January 2012 Source: Nielsen Koreanclick, KDB Daewoo Securities Research
Figure 2. Unique visitors and average duration on major mobile domains
(mn people) (min.) 12 Combined unique visitors (L) 1000 Average duration (R)
9 750
6 500
3 250
0 0 daum.net nate.com olleh.com naver.com kakao.com tistory.com google.com tstore.co.kr ahnlab.com android.com google.co.kr cyworld.com youtube.com samsung.com facebook.com
Source: Nielsen Koreanclick, KDB Daewoo Securities Research KDB Daewoo Securities Research 3 March 8, 2012 Mobile Internet
Table 2. Top Android phone apps (Â000 people, %) Rank Domain Unique user Reach rate Usage rate % of Male % of Female 1 android.com 11,568 96.9 97.6 59.0 41.0 2 kakao.com 11,293 94.6 97.3 58.0 42.0 3 google.com 8,625 72.3 73.2 58.8 41.2 4 naver.com 7,807 65.4 82.6 56.5 43.5 5 samsung.com 6,372 53.4 97.7 58.2 41.8 6 tstore.co.kr 5,276 44.2 73.5 60.3 39.7 7 ahnlab.com 5,105 42.8 66.3 59.8 40.2 8 daum.net 5,031 42.2 67.3 56.4 43.6 9 youtube.com 5,006 41.9 43.8 59.2 40.8 10 nate.com 4,455 37.3 54.8 53.1 46.9 11 facebook.com 4,095 34.3 73.9 62.6 37.4 12 sktelecom.com 3,421 28.7 81.6 59.4 40.6 13 olleh.com 3,248 27.2 81.3 55.3 44.7 14 cyworld.com 3,056 25.6 58.4 46.1 53.9 15 madsmart.co.kr 2,963 24.8 87.6 50.1 49.9 Note: Above data is based on Android phone users in January 2012 Source: Nielsen Koreanclick, KDB Daewoo Securities Research
Figure 3. Unique users and usage rate by top providers of Android phone apps
(mn people) Unique users (L) Usage rate (R) (%) 12 100
9 75
6 50
3 25
0 0 daum.net nate.com olleh.com naver.com kakao.com google.com tstore.co.kr ahnlab.com android.com cyworld.com youtube.com samsung.com facebook.com sktelecom.com madsmart.co.kr
Source: Nielsen Koreanclick, KDB Daewoo Securities Research
Figure 4. Male and female users by top providers of Android phone apps
(%) 80 % of Male % of Female
60
40
20
0 daum.net nate.com olleh.com naver.com kakao.com google.com tstore.co.kr ahnlab.com android.com cyworld.com youtube.com samsung.com facebook.com sktelecom.com madsmart.co.kr
Source: Nielsen Koreanclick, KDB Daewoo Securities Research
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Table 3. Demographics of Android phone app users (Â000 people, Â000 hours, %, min., days, units) Classification Universe Unique users Total time spent Time share Average duration App usage days # of App usage # of App setup All 11,936 11,860 84,236 100.0 7,103 24 46 120 Male 6,974 6,948 48,772 57.9 7,019 24 46 123 Female 4,962 4,911 35,464 42.1 7,221 25 45 116 ~18 1,791 1,782 13,542 16.1 6,146 23 45 109 19~29 3,443 3,405 33,081 39.3 9,588 26 51 132 30~39 3,149 3,136 21,844 25.9 6,905 25 45 123 40~ 3,553 3,537 15,768 18.7 4,450 22 37 107 Capital area 6,292 6,275 45,626 54.2 7,271 24 45 121 Yeongnam area 3,076 3,066 20,938 24.9 6,828 24 46 121 Chungcheong/Ga 1,358 1,337 9,140 10.9 6,837 24 44 117 ngwon Honam/Jeju 1,209 1,181 8,532 10.1 7,223 24 47 118 Own business 471 2,884 3.4 6,118 25 41 109 Student 3,975 36,441 43.3 9,167 25 52 126 Housewife 771 4,542 5.4 5,893 24 38 100 Others 492 3,421 4.1 6,952 24 46 118 White-collar 5,162 30,948 36.7 5,996 23 43 120 Blue-collar 989 6,000 7.1 6,069 24 44 116 Note: Above data is based on Android phone users in January 2012 from Nielsen Koreanclick Source: Nielsen Koreanclick, KDB Daewoo Securities Research
Figure 5. Unique users of Android phone apps by age Figure 6. Time spent on Android phone apps by profession
Blue-collar Self employed 40~ ~18 7% 3% 19% 16%
White-collar Student 37% 44%
30~39 26% 19~29 39%
Others Housewife 4% 5%
Source: Nielsen Koreanclick, KDB Daewoo Securities Research Source: Nielsen Koreanclick, KDB Daewoo Securities Research
Figure 7. Average duration on Android phone apps by demographic Figure 8. Number of Android phone apps used by demographics
(min.) (units) 10,000 60 50 45.6 8,000 7,103 40 6,000 30 4,000 20
2,000 10
0 0 All All ~18 40~ ~18 40~ Male Male 19~29 30~39 19~29 30~39 Others Others Female Female Student Student Housewife Blue-collar Housewife Blue-collar White-collar White-collar Capital area Capital Honam/Jeju Honam/Jeju Capital area Capital Self employed Self Self employed Self Yeongnam area Yeongnam Yeongnam area Yeongnam Chungcheong/Gangwon Chungcheong/Gangwon
Source: Nielsen Koreanclick, KDB Daewoo Securities Research Source: Nielsen Koreanclick, KDB Daewoo Securities Research
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1. Mobile app traffic
KakaoTalk is the We initially anticipated that a large portion of internet traffic would be generated via web dominant leader by browsers (e.g. MicrosoftÊs Internet Explorer, iPhoneÊs Safari and Android web browers) on every standard the mobile platform, as it was on the PC platform.
However, internet access via mobile apps was 10.6 times longer than via mobile web browsers (December 2011, Nielsen KoreanClick report). It is worth noting that the number of mobile app users and mobile web users were similar (Android-based smartphones).
Indeed, KakaoTalk was the undisputed leader in January mobile app traffic, far surpassing its rivals by every measure including unique visitors, app downloads, usage rate, total time spent, and average duration.
Excluding basic apps (i.e., those that are required to operate an Android-based smartphone, such as AndroidÊs Market, Gallery and calendar apps), Naver (ranked fifth) was the most- frequently used app. Apps developed by Samsung Electronics also ranked high, on the back of the companyÊs strong Android-based smartphone sales.
Table 4. Top Android phone apps (Â000 people, %, Â000 hours, min.) Unique Unique Total time Average Rank Application Service provider Usage rate users downloads spent duration 1 Kakao Talk Kakao 11,293 11,607 97.3 9,459 838 2 Market Android 10,390 11,839 87.8 984 95 3 Gallery Android 8,880 10,523 84.4 1,901 214 4 Calendar Android 6,402 6,404 100.0 451 70 5 Naver NHN 6,289 7,061 89.1 1,972 314 6 Google map Google 6,288 11,577 54.3 85 14 7 Music Player Android 5,151 8,808 58.5 2,800 544 8 YouTube Google 5,006 11,430 43.8 430 86 9 Message Samsung Electronics 4,673 4,822 96.9 908 194 10 Camera Samsung Electronics 4,627 5,985 77.3 120 26 11 Alarm/Clock Samsung Electronics 4,476 5,630 79.5 250 56 12 Video Player Samsung Electronics 4,372 6,199 70.5 645 148 13 Facebook Facebook 4,094 5,514 74.3 751 184 14 T store SK Planet 4,016 6,870 58.5 112 28 15 Calendar Android 3,938 9,292 42.4 91 23 Note: Above data is based on Android phone users in January 2012 Source: Nielsen Koreanclick, KDB Daewoo Securities Research
Figure 9. Unique users and usage rates of top Android phone apps
(mn people) Unique users Usage rate (%) 12 100
80 9
60 6 40
3 20
0 0 Naver Market Gallery T store Camera Calendar Calendar YouTube Message Facebook Kakao Talk Kakao Google map Alarm/Clock Video Player Video Music Player
Source: Nielsen Koreanclick, KDB Daewoo Securities Research
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Table 5. Top Android phone app downloads and age breakdown (Â000 people, %) Unique Rank Application Service provider ~18 19~29 30~39 40~ downloads 1 Market Android 11,839 15.1 28.8 26.5 29.7 2 Kakao Talk Kakao 11,607 15.4 29.3 26.2 29.1 3 Google map Google 11,577 15.2 28.1 26.8 30.0 4 Gmail Google 11,440 15.0 28.6 26.7 29.8 5 YouTube Google 11,430 15.0 28.5 26.4 30.1 6 Voice search Google 11,344 15.4 28.1 26.6 29.9 7 Google Search Google 11,301 15.7 28.2 26.3 29.8 8 Talk Android 10,891 15.2 28.4 26.4 30.0 9 Address book Android 10,743 15.6 27.6 26.7 30.1 10 Gallery Android 10,523 15.3 27.3 26.5 30.9 11 News & Weather Android 10,267 15.5 28.1 26.0 30.4 12 Calendar Android 9,292 14.5 27.3 26.5 31.7 13 Email Android 9,236 16.0 26.4 25.8 31.8 14 Music Player Android 8,808 13.6 27.8 27.4 31.2 15 Naver NHN 7,061 18.0 28.7 25.9 27.4 Note: Above data is based on Android phone users in January 2012 Source: Nielsen Koreanclick, KDB Daewoo Securities Research
Figure 10. Top Android phone app downloads and downloads by the 19~39 age segment
(mn person) Unique downloads Age of 19~39 (R) (%) 12 56
9 55
6 54
3 53
0 52 Talk Email Gmail Naver Market Gallery Calendar YouTube Kakao Talk Kakao Google map Google Voice search Voice PlayerMusic Address book Address Google Search Google News & Weather
Source: Nielsen Koreanclick, KDB Daewoo Securities Research
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Mobile game, messenger and music app traffic Tap Sonic, KakaoTalk, In January, mobile game traffic was dispersed widely across various genres as indicated by Facebook and Melon unique visitors and total time spent. Tap Sonic recorded the biggest user share of 14.6% topped their respective with 1.37mn unique visitors, followed by Angry Birds. Based on the total time spent, Rule categories the Sky, a social network game, accounted for the largest share (13.8%) during the month.
Among messenger and VoIP apps, KakaoTalk recorded the largest number of unique visitors and the longest time spent. In the social media category, Facebook topped the charts for both unique visitors and total time spent.
In the music service category, free MP3 player apps provided by hardware or software companies were preferred over paid apps (the Android OS enables the easier transfer and copy of MP3 files compared to other operating systems). Among paid music service apps, LoenÊs (SK TelecomÊs subsidiary) Melon outperformed its peers.
Table 6. Top mobile game apps based on unique users and time spent (Â000 people, mn hours, %) Unique Total time Rank Application Service provider User share RankApplication Service provider Time share users spent Game - 9,379 100.0 Game - 8,456 100.0 1 Tap Sonic Neowiz 1,374 14.6 1 Rule The Sky JCE 1,165 13.8 Hangame 2 Angry Birds Rovio Mobile 1,044 11.1 2 NHN 311 3.7 Sacheonseong 3 Angry Birds Rovio Mobile 1,016 10.8 3 Angry Birds Rovio Mobile 293 3.5 4 Bubble Shooter Go App 842 9.0 4 Smurfs' Village Beeline Interactive 253 3.0 Hangame 5 NHN 731 7.8 5 Bubble Shooter Go App 241 2.8 Sacheonseong 6 Rule The Sky JCE 684 7.3 6 Paladog RealNetworks 189 2.2 7 Fruit Ninja Halfbrick Studios 658 7.0 7 Chaosvain 153 1.8 8 Racing Moto DroidHen Casual 633 6.7 8 Bakery Story TeamLava 141 1.7 9 Blockpuzzle 3 mToy 580 6.2 9 Defender DroidHen 124 1.5 10 Smurfs' Village Beeline Interactive 569 6.1 10 TinyFarm Com2uS 121 1.4 11 Angry Birds Rio Rovio Mobile 567 6.0 11 Angry Birds Rovio Mobile 114 1.4 12 Shoot Bubble Deluxe City Games 484 5.2 12 Shoot Bubble Deluxe City Games 112 1.3 DGunners SP / 13 Speaking cat 2 Outfit 7 482 5.1 13 SHADE 99 1.2 ICEBURN!! 14 KartRider Rush Nexon 443 4.7 14 Hello Cappuccino AppsTree 95 1.1 15 Stop playing pranks Nfly 440 4.7 15 Hangame Shinmatgo NHN 94 1.1 Note: Above data is based on Android phone users in January 2012 Source: Nielsen Koreanclick, KDB Daewoo Securities Research
Figure 11. Unique users of top mobile game apps Figure 12. Time spent on top mobile game apps
('000 people) (%) (mn hours) (%) 1,600 Unique users (L) 16 1,200 16 Total time spent (L) User share (R) Time share (R) 1,200 12 900 12
800 8 600 8 400 4
300 4 0 0
0 0 Tap Sonic Tap Fruit Ninja Fruit Angry Birds Angry Birds Angry Racing Moto Rule The Sky Blockpuzzle 3 Speaking cat 2 cat Speaking Smurfs' Village Bubble Shooter Bubble KartRider Rush KartRider Angry Birds Rio Birds Angry SP / Paladog Hello Defender TinyFarm Hangame Deluxe DGunners Stop playing pranks playing Stop Chaosvain Shinmatgo Cappuccino Shoot Bubble Deluxe Shoot Bubble Angry Birds Angry Angry Birds Angry Hangame Bakery Story Bakery Shoot Bubble Shoot Rule The Sky Sacheonseong Smurfs' Village Smurfs' Bubble Shooter Bubble Hangame Sacheonseong Hangame
Source: Nielsen Koreanclick, KDB Daewoo Securities Research Source: Nielsen Koreanclick, KDB Daewoo Securities Research
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Table 7. Rank of top mobile apps for messenger and VoIP category based on unique users and time spent (Â000 people, mn hours, %) Rank Application Service Provider Unique user User share Rank Application Service Provider Total time spent Time share Communication - 11,711 100.0 Communication - 21,566 100.0 1 Kakao Talk Kakao 11,293 96.4 1 Kakao Talk Kakao 9,459 43.9 2 TicTok Madsmart 2,963 25.3 2 TicTok Madsmart 437 2.0 3 MyPeople Daum 2,942 25.1 3 MyPeople Daum 302 1.4 4 NateOnUC SK Communications 1,454 12.4 4 GO SMS Pro GO Dev Team 273 1.3 5 NateOnTalk SK Communications 1,386 11.8 5 NateOnUC SK Communications 157 0.7 6 GO SMS Pro GO Dev Team 694 5.9 6 LINE NAVER Japan 81 0.4 7 HD Videophone SK Planet 672 5.7 7 NateOnTalk SK Communications 60 0.3 8 LINE NAVER Japan 621 5.3 8 LightSMS Byungwook Kang 40 0.2 9 m&Talk Infobank 575 4.9 9 SimTalk INFINIO 34 0.2 10 TiKL TiKL 546 4.7 10 WhatsApp WhatsApp 27 0.1 11 Viber Viber 438 3.7 11 Viber Viber 26 0.1 12 Tango Tango 434 3.7 12 m&Talk Infobank 26 0.1 13 Skype Skype 381 3.3 13 Tango Tango 23 0.1 14 LightSMS Byungwook Kang 288 2.5 14 FREESMs SayM 18 0.1 15 MPost LG CNS 245 2.1 15 Skype Skype 17 0.1 Note: Above data is based on Android phone users in January 2012; Communication apps only include apps with messenger and voice call features Source: Nielsen Koreanclick, KDB Daewoo Securities Research
Figure 13. Unique users of top messenger and VoIP mobile apps Figure 14. Time spent on top messenger and VoIP mobile apps
(mn people) (%) (bn hours) (%) 10 50 12 Unique users (L) 100 Total time spent (L) User share (R) Time share (R) 40 9 75 8
30 6 50 5 20
3 25 3 10
0 0 0 0 TiKL Viber LINE Tango Skype MPost Viber TicTok LINE Tango m&Talk Skype TicTok m&Talk LightSMS SimTalk MyPeople NateOnUC Kakao Talk MyPeople LightSMS WhatsApp NateOnTalk FREESMs NateOnUC Kakao Talk Kakao NateOnTalk GO SMS Pro SMS GO HD Videophone HD GO SMS Pro GO SMS
Source: Nielsen Koreanclick, KDB Daewoo Securities Research Source: Nielsen Koreanclick, KDB Daewoo Securities Research
Table 8. Rank of top social media mobile apps based on unique users and time spent (Â000 people, mn hours, %) Unique Total time Rank Application Service provider User share RankApplication Service provider Time share users spent Social Media - 7,617 100.0 Social Media - 2,134 100.0 1 Facebook Facebook 4,094 53.7 1 Facebook Facebook 751 35.2 2 Cyworld SK Communications 3,026 39.7 2 Cyworld SK Communications 413 19.4 3 Twitter Twitter 1,157 15.2 3 NaverCafe NHN 154 7.2 4 NaverCafe NHN 589 7.7 4 Me2day NHN 127 5.9 5 SNS Samsung Electronics 544 7.1 5 Twitter Twitter 126 5.9 6 Hi There PSYNET 443 5.8 6 Daum Cafe Daum Comm. 104 4.9 7 SNS LG Electronics 393 5.2 7 Whispering Sailing Spoon&Ross 79 3.7 8 Naver Blog NHN 354 4.6 8 Hi There PSYNET 64 3.0 9 Me2day NHN 344 4.5 9 Naver Blog NHN 62 2.9 10 Whispering Sailing Spoon&Ross 334 4.4 10 SNS LG Electronics 26 1.2 11 Daum Cafe Daum Comm. 296 3.9 11 Today's humor Eoheung 25 1.2 12 Social hub Samsung Electronics 220 2.9 12 twicca Tetsuya Aoyama 23 1.1 13 Twitter PANTECH 180 2.4 13 Itting 2000cc 18 0.9 14 Messenger Facebook 152 2.0 14 Making friend NYTEL 16 0.8 15 SNS Manager PANTECH 139 1.8 15 SNS Samsung Electronics 16 0.7 Note: Above data is based on Android phone users in January 2012 / Source: Nielsen Koreanclick, KDB Daewoo Securities Research
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Figure 15. Unique users of top social media mobile apps Figure 16. Time spent on top social media mobile apps
('000 people) (%) (mn hours) (%) 5,000 Unique users (L) 60 800 Total time spent (L) 40 User share (R) Time share (R) 4,000 50 600 30 40 3,000 30 400 20 2,000 20 200 10 1,000 10
0 0 0 0 SNS Itting SNS SNS SNS twicca Twitter Twitter Twitter Me2day Me2day Cyworld Cyworld Hi ThereHi Hi ThereHi Facebook Facebook Social hub Social NaverCafe NaverCafe Messenger Naver Blog Naver Blog Daum Cafe Daum Cafe Making friend SNS Manager SNS Today's humor Whispering Sailing Whispering Sailing
Source: Nielsen Koreanclick, KDB Daewoo Securities Research Source: Nielsen Koreanclick, KDB Daewoo Securities Research
Table 9. Rank of top music mobile apps based on unique users and time spent (Â000 people, mn hours, %) Unique Total time Rank Application Service provider User share Rank Application Service provider Time share users spent Music - 8,653 100.0 Music - 4,906 100.0 1 Android Music Player Android 5,151 59.5 1 Android Music Player Android 2,800 57.1 2 Melon Loen Entertainment 1,909 22.1 2 PlayerPro BlastOn 442 9.0 3 SKY Music PANTECH 628 7.3 3 Melon Loen Entertainment 332 6.8 4 Sound Player Samsung Electronics 559 6.5 4 Music HTC 322 6.6 5 NaverMusic NHN 458 5.3 5 SKY Music PANTECH 263 5.4 6 PowerAMP Max MP 437 5.1 6 MIUIMusic - 119 2.4 7 AlSong ESTsoft 360 4.2 7 SKY Music PANTECH 91 1.9 8 PlayerPro BlastOn 334 3.9 8 Music Google 66 1.3 9 Mnet CJ E&M 314 3.6 9 Bugs Neowiz 58 1.2 10 MyMusicOn Yuie 311 3.6 10 Mnet CJ E&M 52 1.1 11 XingPlayer n-xing mobile 290 3.4 11 MortPlayer Music sto-helit.de 40 0.8 12 Music HTC 288 3.3 12 PowerAMP Max MP 27 0.6 13 Bugs NEOWIZ Corp. 275 3.2 13 NaverMusic NHN 27 0.6 14 SKY Music PANTECH 259 3.0 14 XingPlayer n-xing mobile 26 0.5 15 Music Download by Heejin Heejin 254 2.9 15 AlSong ESTsoft 25 0.5 Note: Above data is based on Android phone users in January 2012 Source: Nielsen Koreanclick, KDB Daewoo Securities Research
Figure 17. Unique users of top music mobile apps Figure 18. Time spent on top music mobile apps
('000 people) (%) (mn hours) (%) 6,000 Unique users (L) 80 3,200 Total time spent (L) 60 User share (R) Time share (R) 4,500 60 2,400 45
3,000 40 1,600 30
1,500 20 800 15 0 0 0 0 Mnet Bugs Music Melon AlSong PlayerPro Mnet Bugs XingPlayer Melon Music Music SKY Music SKY SKY Music SKY PowerAMP NaverMusic MyMusicOn AlSong Sound Player PlayerPro XingPlayer MIUIMusic PowerAMP SKY Music SKY Music NaverMusic Android Music Player Music Android MortPlayer Music MortPlayer Music Download by Heejin Android Music Player Music Android
Source: Nielsen Koreanclick, KDB Daewoo Securities Research Source: Nielsen Koreanclick, KDB Daewoo Securities Research
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2. Mobile website traffic
Mobile sites are In terms of mobile website traffic by section, ÂsearchÊ has taken hold as the most widely accessed mostly for used service, attracting around 1mn unique visitors and 320mn visits in January. searches, communities ÂCommunitiesÊ, a combination of traditional services (cafes, blogs, mini homepages, etc.) and news/media and new services (Facebook, Twitter, etc.), drew 9.35mn unique visitors and 210mn visits. News and media (including videos and DMB) also showed strong numbers, with 7.5mn unique visitors and 190mn visits.
As for JanuaryÊs top ranking mobile site domains, Naver.com attracted the highest traffic, followed by Daum.net. Unique visitors to Naver and Daum reached 9.41mn and 8.08mn, respectively, while Google.co.kr (third) and Google.com (fourth) saw unique visitors of 7.79mn and 7.01mn, respectively.
In terms of page views (an indicator of user activity), Naver and Daum topped the list by a wide margin with 2.23bn and 2.07bn views, respectively. Nate.com came in third with 690mn page views.
Table 10. Usage of mobile sites by section (Â000 people, mn hours, min., Â000 visits, mn views) Average Rank Section Unique visitors Total time spent Visits Page views duration 1 Search 10,098 472 47 325,501 886 2 Community 9,350 1,134 121 218,749 2,055 3 News & Media 7,559 929 123 197,011 1,088 4 Life 4,400 84 19 19,071 85 5 Communication 4,307 73 17 41,537 128 6 Entertainment 3,387 123 36 16,495 201 7 Video 2,676 31 12 8,750 23 8 Commerce 2,330 9 4 6,427 25 9 Personalized 1,954 5 2 4,221 8 10 PDS 1,432 5 4 2,741 5 11 Event 1,408 2 1 2,099 2 12 Biz and Finance 920 36 39 9,178 50 13 Mobile 474 1 1 600 1 14 Kids 266 4 15 522 5 15 Game 230 21 92 2,929 26 Note: Above data is based on Android phone users in January 2012 Source: Nielsen Koreanclick, KDB Daewoo Securities Research
Figure 19. Unique visitors to mobile sites by major section Figure 20. Total time spent on mobile sites by major section
Entertainment Others Others Search 4% Video 1% 3% Search 18% 20% Communication 2% 16%
Life 3% Video 5%
Entertainment 7% Community 18% News & Media Communication 32% 8% Community News & Media Life 39% 15% 9%
Source: Nielsen Koreanclick, KDB Daewoo Securities Research Source: Nielsen Koreanclick, KDB Daewoo Securities Research
KDB Daewoo Securities Research 11 March 8, 2012 Mobile Internet
Table 11. Top mobile sites (Â000 people, mn views) Rank Domain Unique visitors Rank Domain Page views 1 naver.com 9,419 1 naver.com 2,235 2 daum.net 8,084 2 daum.net 2,078 3 google.co.kr 7,798 3 nate.com 694 4 google.com 7,015 4 google.co.kr 202 5 tistory.com 5,570 5 ppomppu.co.kr 168 6 nate.com 5,198 6 dcinside.com 91 7 youtube.com 4,626 7 tistory.com 65 8 facebook.com 3,470 8 google.com 61 9 cyworld.com 2,896 9 11st.co.kr 58 10 tstore.co.kr 2,429 10 nexon.com 58 11 olleh.com 2,312 11 cafe24.com 42 12 chosun.com 2,193 12 slrclub.com 41 13 twitter.com 1,992 13 thisisgame.com 39 14 cauly.net 1,869 14 cyworld.com 33 15 asiae.co.kr 1,864 15 auction.co.kr 32 Note: Above data is based on Android phone users in January 2012 / Source: Nielsen Koreanclick, KDB Daewoo Securities Research
Figure 21. Top mobile sites based on unique visitors Figure 22. Top mobile sites based on page views
(mn people) (mnPV) 10 Unique visitors 2,500 Page views
2,000 8 1,500 5 1,000
3 500
0 0 daum.net nate.com 11st.co.kr naver.com cauly.net nexon.com daum.net nate.com tistory.com olleh.com slrclub.com google.com cafe24.com naver.com google.co.kr cyworld.com asiae.co.kr auction.co.kr tistory.com twitter.com dcinside.com google.com tstore.co.kr google.co.kr chosun.com cyworld.com youtube.com ppomppu.co.kr thisisgame.com facebook.com
Source: Nielsen Koreanclick, KDB Daewoo Securities Research Source: Nielsen Koreanclick, KDB Daewoo Securities Research
Mobile search traffic In terms of time spent, Naver.com continued to dominate the mobile search segment. As with fixed-line search ads, Naver.com has the mobile search ad revenues are also generated on a cost-per-click basis. In other words, largest market share search ad revenues are recognized based on the number of ad clicks, which can translate (74.8%; PC and mobile into sales for advertised products. Such ad clicks increase in proportion to the number of combined) queries, which in turn rise in proportion to the time spent on searches. In terms of mobile search time spent, Naver.com has the largest market share (58.8%), followed by Google (google.co.kr and google.com, 21.8% combined) and Daum (17.2%).
Table 12. Mobile search traffic (Â000 people, Â000 views, Â000 hour, min., %, days) Unique Total time Average Average Reach Domain Page views Time share visitors spent duration frequency rate google (kr+com) 13,392 185,795 102,952 7 21.8 5 56.1 naver.com 5,822 524,019 277,305 48 58.8 10 48.8 daum.net 4,843 157,808 81,220 17 17.2 6 40.6 nate.com 2,251 17,626 9,931 4 2.1 3 18.9 yahoo.co.kr 187 479 246 1 0.1 1 1.6 paran.com 100 191 93 1 0.0 1 0.8 Note: Above data is based on Android phone users in January 2012 Source: Nielsen Koreanclick, KDB Daewoo Securities Research
Daewoo Securities Research 12
March 8, 2012 Mobile Internet
Figure 23. Unique visitors to mobile search sites in January 2012 Figure 24. Total time spent on mobile search sites in January 2012
(mn people) (mn hours) 16 Unique visitors 300 Total time spent
12 225
8 150
4 75
0 0 google google (kr+com) (kr+com) daum.net nate.com daum.net nate.com paran.com paran.com naver.com naver.com yahoo.co.kr yahoo.co.kr
Source: Nielsen Koreanclick, KDB Daewoo Securities Research Source: Nielsen Koreanclick, KDB Daewoo Securities Research
Figure 25. Page views on mobile search sites in January 2012 Figure 26. Average duration on mobile search sites in Jan. 2012
(mnPV) (min.) 600 60 Average duration Page views 500 50
400 40
300 30
200 20
100 10
0 0 google google (kr+com) (kr+com) daum.net nate.com daum.net nate.com naver.com paran.com naver.com paran.com yahoo.co.kr yahoo.co.kr
Source: Nielsen Koreanclick, KDB Daewoo Securities Research Source: Nielsen Koreanclick, KDB Daewoo Securities Research
KDB Daewoo Securities Research 13 March 8, 2012 Mobile Internet
Table 13. PC search traffic (Â000 people, Â000 views, Â000 hours, min., %, days) Unique Total time Average Average Reach Domain Page views Time share visitors spent duration frequency rate naver.com 28,810 5,676 2,359,693 82 77.2 11 90.02 daum.net 20,171 1,187 492,772 24 16.1 7 63.02 nate.com 13,653 236 92,212 7 3.0 3 42.66 google (kr+com) 8,698 198 85,832 8 2.8 3 13.59 yahoo.co.kr 4,810 56 21,345 4 0.7 3 15.03 paran.com 862 8 3,245 4 0.1 3 2.69 Note: Based on PC users in Jan 2012 Source: Nielsen Koreanclick, KDB Daewoo Securities Research
Table 14. Combined PC and mobile search traffic (Â000 people, mn views, units, %) Search unique Domain Page views # of Queries Query share Time share users naver.com 29,306 6,200 4,213,476 72.2 74.8 daum.net 21,589 1,345 1,142,309 19.6 16.3 google (kr+com) 19,650 384 245,955 4.2 5.4 nate.com 14,935 254 177,626 3.0 2.9 yahoo.co.kr 4,956 56 49,084 0.8 0.6 paran.com 953 8 7,499 0.1 0.1 Note: Based on Android phone users in Jan 2012, search unique user is classified real searching user among unique visitors, Source: Nielsen Koreanclick, KDB Daewoo Securities Research
Figure 27. Time share (%) by mobile search site Figure 28. Time share (%) by PC search site
yahoo.co.kr 0.1 google (kr+com) yahoo.co.kr 2.8 0.7 google (kr+com) nate.com 21.8 3.0
daum.net 16.1 nate.com 2.1
naver.com 58.8 daum.net 17.2
naver.com 77.2
Note: Based on Android phone users in Jan 2012 Note: Based on PC users in Jan 2012 Source: Nielsen Koreanclick, KDB Daewoo Securities Research Source: Nielsen Koreanclick, KDB Daewoo Securities Research
Daewoo Securities Research 14
March 8, 2012 Mobile Internet
NHN (035420 KS)
Buy (Maintain) Market leader in terms of most mobile traffic indicators
Target Price (12M, W) 300,000 Naver.com is the mobile page view leader in January (mobile website and apps) Share Price (03/07/12, W) 235,500 January search market share (in terms of combined PC and mobile search time spent) of Expected Return (%) 27.4 74.8% EPS Growth (11P, %) -8.8 Market EPS Growth (11P, %) -5.9 Unique visitors to Naver Japan surge to 32mn in February P/E (11P, x) 22.5
Market P/E (11P, x) 12.0 KOSPI 1,982.15 Naver is the mobile page view leader Market Cap (Wbn) 11,334 All of the service sections at NHNÊs portal (naver.com), including search, Shares Outstanding (mn) 48 Avg Trading Volume (60D, '000) 176 communities, and lifestyle, are seeing strong mobile traffic. Since the domestic Avg Trading Value (60D, Wbn) 39 mobile internet market is still in its incipient stages, it remains to be seen which Dividend Yield (11P, %) 0.2 section will be the golden goose. Still, it seems significant that NHN has gained a Free Float (%) 79.2 strong foothold in the business. 52-Week Low (W) 168,500 52-Week High (W) 260,500 In January, naver.com recorded the most page views (via both the mobile Beta (12M, Daily Rate of Return) 0.5 website and apps) in the mobile internet segment. On the mobile website side, Price Return Volatility (12M Daily, %, SD) 2.6 NHN recorded the strongest unique visitor and page view figures. Furthermore, Foreign Ownership (%) 61.4 naver.com was the only portal that saw a high volume of mobile app usage. It Major Shareholder(s) should be noted that NHNÊs search service has become one of its key mobile OppenheimerFunds, Inc.(OFI) et al. (12.19%) businesses. In January, NHN won a market share of 74.8% (in terms of combined HJ Lee et al. (9.75%) Treasury stock (8.64%) PC and mobile search time spent), vs. 16.3% for Daum and 5.4% for Google. Price Performance (%) 1M 6M 12M Surging mobile search ad sales; Unique visitors to Naver Japan hit 32mn Absolute 7.8 7.3 26.6 NHNÊs mobile ad sales are on the upswing. Daily average mobile search ad Relative 7.8 -0.8 26.5 revenues surged from a mere W20mn in December 2010 to W280~290mn in February. The proportion of mobile ad revenues (out of the companyÊs overall ad revenues) is likely to soar from 3% in 2011 to 7.5% in 2012 and 13.1% in 2013.
In February, the number of unique visitors to Naver Japan reached 32mn (combined PC and mobile). Moreover, cumulative downloads of Line (a mobile group messaging service similar to KakaoTalk) has exceeded 20mn. Given recent traffic levels, NHN JapanÊs launch of ad sales seems to be nearing.
In 1Q, NHNÊs revenues, operating profit, and net profit are projected to expand 14.3% YoY, 10.4% YoY, and 16.5% YoY, respectively. Marketing spend is likely to remain flat YoY. However, the companyÊs 1Q operating profit is forecast to jump 21.0% QoQ thanks to the dissipation of one-off expenses (incurred in 4Q11) and a reduction in corporate taxes.
Share price § Earnings & Valuation Metrics 140 KOSPI FY Revenues OP OP Margin NP EPS EBITDA FCF ROE P/E P/BEV/EBITDA 120 (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) (x) (x) 100 12/09 1,598 579 36.2 421 8,748 649 377 52.5 22.0 9.8 13.5
80 12/10 1,773 625 35.2 494 10,269 714 533 42.1 22.1 8.4 14.4 12/11P 2,147 620 28.9 451 9,370 701 449 30.0 22.5 6.5 13.2 60 12/12F 2,491 771 31.0 596 12,374 863 661 33.5 19.0 6.1 11.7 40 12/13F 2,978 925 31.1 716 14,869 999 763 34.4 15.8 5.2 9.7 3/11 7/11 11/11 3/12 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, KDB Daewoo Securities Research estimates
KDB Daewoo Securities Research 15 March 8, 2012 Mobile Internet
Table 15. Quarterly and annual earnings trends and forecasts (Wbn, %) 1Q11 2Q11 3Q11 4Q11P 1Q12F 2Q12F 3Q12F 4Q12F 2010 2011P 2012F Operating revenues 504 525 528 591 576 612 617 686 1,791 2,147 2,491 Sales 502 522 525 573 569 605 608 675 1,785 2,121 2,457 Domestic 431 451 453 488 486 522 523 582 1,544 1,822 2,113 Overseas 71 71 72 85 84 83 85 93 241 299 344 Search ad 249 269 273 291 295 319 324 345 851 1,082 1,284 Display ad 66 74 70 89 79 88 84 107 243 299 358 Game 166 154 156 164 170 172 174 197 606 641 712 Others 21 25 25 29 25 26 26 26 84 100 104 Revenue breakdown Domestic 85.8 86.4 86.3 85.1 85.3 86.3 86.0 86.2 86.5 85.9 86.0 Overseas 14.2 13.6 13.7 14.9 14.7 13.7 14.0 13.8 13.5 14.1 14.0 Search ad 49.6 51.5 52.1 50.7 51.9 52.7 53.3 51.1 47.7 51.0 52.2 Display ad 13.1 14.1 13.3 15.6 13.8 14.6 13.8 15.9 13.6 14.1 14.6 Game 33.0 29.6 29.8 28.7 29.9 28.4 28.6 29.1 34.0 30.2 29.0 Others 4.3 4.8 4.7 5.0 4.4 4.3 4.3 3.9 4.7 4.7 4.2 Other revenues 2 3 3 18 7 8 9 10 5 26 33 Operating costs 337 373 379 438 391 425 428 476 1,200 1,527 1,720 SG&A 332 365 377 393 373 406 418 448 1,169 1,466 1,645 Other costs 5 8 2 45 18 18 10 28 32 61 74 Operating profit 167 152 149 153 185 188 189 209 590 620 771 OP margin 33.2 28.9 28.2 25.8 32.1 30.6 30.6 30.5 33.0 28.9 30.9 Net profit 123 114 101 113 144 147 147 158 469 451 596 NP margin 24.4 21.7 19.0 19.2 24.9 24.0 23.9 23.0 26.2 21.0 23.9 YoY growth Operating revenues 16.1 20.2 18.3 24.7 14.3 16.7 16.9 16.0 19.9 16.0 Search ad 22.8 32.0 31.1 22.9 18.7 18.7 18.7 18.7 27.0 18.7 Display ad 16.4 15.3 23.2 35.5 19.9 19.9 19.9 19.9 22.9 19.9 Game 2.5 -0.7 5.3 16.6 2.6 11.1 11.1 19.8 5.6 11.1 Operating profit 14.3 -1.1 -6.4 15.9 10.4 23.8 27.0 37.3 5.1 24.3 Net profit 15.6 -4.4 -7.1 -16.1 16.5 28.9 46.6 39.3 -3.8 32.1 QoQ growth Operating revenues 6.3 4.1 0.7 11.9 -2.6 6.4 0.8 11.1 Search ad 5.2 8.0 1.8 6.3 1.6 8.0 1.8 6.3 Display ad -0.5 12.2 -5.1 27.8 -11.9 12.2 -5.1 27.8 Game 17.7 -7.0 1.3 5.1 3.6 0.8 1.3 13.3 Operating profit 27.0 -9.3 -1.7 2.4 21.0 1.7 0.8 10.7 Net profit -8.7 -7.4 -11.8 12.7 26.7 2.4 0.3 7.1 Note: IFRS consolidated basis Source: NHN, KDB Daewoo Securities Research
Table 16. NHNÊs mobile ad revenue forecasts (%, Wbn) 2012F 2013F 2014F 2015F Mobile adÊs proportion to total revenues 7.5 13.1 13.7 15.5 Mobile ad revenues 124 269 349 502 (YoY growth, %) 117.6 29.7 43.8 Mobile search ads 98 213 276 397 Mobile display ads 20 45 58 83 Source: KDB Daewoo Securities Research
KDB Daewoo Securities Research 16 March 8, 2012 Mobile Internet
NHN (035420 KS/Buy/TP: W300,000)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/10 12/11P 12/12F 12/13F (Wbn) 12/10 12/11P 12/12F 12/13F Revenues 1,773 2,147 2,491 2,978 Current Assets 1,110 1,538 1,906 2,340 Cost of Sales 833 0 0 0 Cash and Cash Equivalents 550 690 794 966 Gross Profit 939 2,147 2,491 2,978 AR & Other Receivables 165 199 231 276 SG&A Expenses 315 1,527 1,720 2,053 Inventories 0 0 0 0 Operating Profit (Adj) 625 620 771 925 Other Current Assets 61 74 85 102 Operating Profit 625 620 771 925 Non-Current Assets 866 878 853 851 Non-Operating Profit 19 19 66 75 Investments in Associates 145 94 94 94 Net Financial Income -16 -16 -23 -32 Property, Plant and Equipment 329 360 297 249 Net Gain from Inv in Associates 17 -3 0 0 Intangible Assets 128 146 132 122 Pretax Profit 644 645 837 1,001 Total Assets 1,976 2,416 2,759 3,191 Income Tax 144 175 223 267 Current Liabilities 390 559 628 726 Profit from Continuing Operations 500 469 614 734 AP & Other Payables 105 128 148 177 Profit from Discontinued Operations 34 0 0 0 Short-Term Financial Liabilities 33 126 126 126 Net Profit 495 451 596 716 Other Current Liabilities 252 305 353 423 Controlling Interests 494 451 596 716 Non-Current Liabilities 220 219 221 224 Non-Controlling Interests 1 0 0 0 Long-Term Financial Liabilities 194 189 189 189 Total Comprehensive Profit 495 451 596 716 Other Non-Current Liabilities 11 15 17 20 Controlling Interests 494 451 596 716 Total Liabilities 610 777 848 950 Non-Controlling Interests 1 0 0 0 Controlling Interests 1,366 1,640 1,913 2,243 EBITDA 714 701 863 999 Capital Stock 24 24 24 24 FCF (Free Cash Flow) 533 449 661 763 Capital Surplus 194 195 195 195 EBITDA Margin (%) 40.3 32.6 34.7 33.5 Retained Earnings 1,788 2,203 2,775 3,455 Operating Profit Margin (%) 35.2 28.9 31.0 31.1 Non-Controlling Interests 0 -2 -2 -2 Net Profit Margin (%) 27.9 21.0 23.9 24.0 Stockholders' Equity 1,366 1,638 1,911 2,241
Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/10 12/11P 12/12F 12/13F 12/10 12/11P 12/12F 12/13F Cash Flows from Op Activities 569 547 640 740 P/E (x) 22.1 22.5 19.0 15.8 Net Profit 495 451 596 716 P/CF (x) 18.7 19.1 16.5 14.4 Non-Cash Income and Expense 114 243 249 265 P/B (x) 8.4 6.5 6.1 5.2 Depreciation 72 57 63 49 EV/EBITDA (x) 14.4 13.2 11.7 9.7 Amortization 17 23 30 24 EPS (W) 10,269 9,370 12,374 14,869 Others -42 -2 45 45 CFPS (W) 12,116 11,039 14,289 16,391 Chg in Working Capital -40 64 18 26 BPS (W) 26,957 32,454 38,415 45,484 Chg in AR & Other Receivables -32 -11 -32 -45 DPS (W) 0 536 800 1,000 Chg in Inventories 0 0 0 0 Payout ratio (%) 0.0 5.2 5.9 6.1 Chg in AP & Other Payables 26 32 20 29 Dividend Yield (%) 0.0 0.3 0.3 0.4 Income Tax Paid 0 -210 -223 -267 Revenue Growth (%) 10.9 21.1 16.0 19.6 Cash Flows from Inv Activities -416 -340 -199 -170 EBITDA Growth (%) 10.1 -1.8 23.2 15.7 Chg in PP&E -116 -88 0 0 Operating Profit Growth (%) 7.9 -0.7 24.3 20.1 Chg in Intangible Assets -15 -15 -15 -15 EPS Growth (%) 17.4 -8.8 32.1 20.2 Chg in Financial Assets -248 -232 -220 -200 Accounts Receivable Turnover (x) 10.8 12.1 11.9 12.1 Others -37 -5 36 45 Inventory Turnover (x) Cash Flows from Fin Activities -57 -73 -336 -398 Accounts Payable Turnover (x) Chg in Financial Liabilities 61 70 0 0 ROA (%) 27.6 20.5 23.0 24.1 Chg in Equity -119 -134 -300 -350 ROE (%) 42.1 30.0 33.5 34.4 Dividends Paid 0 0 -24 -35 ROIC (%) 137.0 121.3 164.4 267.4 Others 0 -9 -12 -12 Liability to Equity Ratio (%) 44.6 47.4 44.4 42.4 Increase (Decrease) in Cash 26 140 105 172 Current Ratio (%) 284.5 275.3 303.7 322.4 Beginning Balance 524 550 690 794 Net Debt to Equity Ratio (%) -48.1 -57.9 -66.7 -73.4 Ending Balance 550 690 794 966 Interest Coverage Ratio (x) 84.0 69.3 62.0 74.5 Source: Company data, KDB Daewoo Securities Research estimates
KDB Daewoo Securities Research 17 March 8, 2012 Mobile Internet
Appendix 1. Mobile internet terminology
Internet traffic measures the number of people visiting a website.
In the internet industry, revenues tend to grow in proportion to site usage. A traffic inflection, which occurs when the market shares of service providers change, is a useful leading indicator of the service providersÊ earnings. Meanwhile, unique visitors (UV), a measurement of the number of visitors over a specified time period, leads revenues of online game/music service providers (where users directly pay for the services).
Page views and clicks, which determine what advertisers pay for their ads, influence the sale of display/search ads. Ad rates are determined based on the ability to attract advertisers or the overall economic condition (advertising is in high demand when the economy is in good shape). Mobile search ads are based on the CPC (cost per click) model, like PC online search ads. User clicks are estimated based on queries, as the actual number is not disclosed.
The traffic analysis in this report is based on 11.93mn Android phone users surveyed by Nielsen Koreanclick in January 2012 (see Table 3).
▶ Definitions
Android phone: Smartphones operating on GoogleÊs Android operating system. Android is a software stack and mobile operating system including a set of OS, middleware, user interface, and standard application programs for mobile devices such as smartphones.
Mobile website: Websites accessed via smartphone web browsers, and optimized for the mobile environment.
Mobile application (app): Applications run directly by users on Android-based mobile devices.
Domain: A representative IP address used to access a website.
Unique visitor (unique user): The number of unduplicated (counted only once) visitors to a domain (or a sub-domain/section) over the course of a specified time period.
Page view: A Web page that has been viewed by a unique visitor.
Total time spent (TTS): The total time unique visitors spent on services over a specified time period.
Average duration: Average time each visitor spent on a website over a specified time period.
Time share: The market share of a website/app calculated in terms of TTS.
Reach rate: The percentage of Android phone users who visited a website over a specified time period, calculated as the number of unique visitors divided by the Android phone population.
Query: A request for information from a database, measured as the number of inquiries made, the number of search words typed in the address bar, etc. Search ad revenues can be estimated based on queries.
KDB Daewoo Securities Research 18 March 8, 2012 Mobile Internet
Appendix 2. PC internet traffic
Figure 29. Monthly trend of search time share Figure 30. Monthly trend of search page views
(%) naver.com (bnPV) 80 daum.net 7 naver.com yahoo.co.kr daum.net google.co.kr yahoo.co.kr nate.com google.co.kr 60 5 nate.com
40 4
20 2
0 0 02 04 06 08 10 12 02 04 06 08 10 12
Source: Nielsen Koreanclick, KDB Daewoo Securities Research Source: Nielsen Koreanclick, KDB Daewoo Securities Research
Figure 31. Monthly trend of search queries Figure 32. Monthly trend of front page views
(bn queries) (bnPV) 5 naver.com 4 naver.com daum.net daum.net yahoo.co.kr nate.com 4 google.co.kr yahoo.co.kr nate.com 3
3 2 2
1 1
0 0 06 07 08 09 10 11 12 04 05 06 07 08 09 10 11 12
Source: Nielsen Koreanclick, KDB Daewoo Securities Research Source: Nielsen Koreanclick, KDB Daewoo Securities Research
Figure 33. Monthly trend of start page users Figure 34. Monthly trend of domain page views
(mn people) (bnPV) 24 naver.com 36 naver.com daum.net daum.net yahoo.co.kr nate.com yahoo.co.kr 18 nate.com 27
12 18
6 9
0 0 05 06 07 08 09 10 11 12 04 05 06 07 08 09 10 11 12
Source: Nielsen Koreanclick, KDB Daewoo Securities Research Note: nate.com was spun off from cyworld.com in 2007 Source: Nielsen Koreanclick, KDB Daewoo Securities Research
KDB Daewoo Securities Research 19 March 8, 2012 Mobile Internet
Figure 35. Monthly trend of unique visitors to online game sites Figure 36. Monthly trend of unique visitors to online shopping sites
(mn people) (mn people) 24 12 nexon.com gmarket.co.kr auction.co.kr 11st.co.kr hangame.com interpark.com shopping.naver shopping.daum pmang.com netmarble.net 9 plaync.co.kr 18
6 12
3 6
0 0 04 05 06 07 08 09 10 11 12 04 05 06 07 08 09 10 11 12
Source: Nielsen Koreanclick, KDB Daewoo Securities Research Source: Nielsen Koreanclick, KDB Daewoo Securities Research
Figure 37. Monthly trend of unique visitors to social network service sites
(mn people) (mn people) 14 twitter.com (L) facebook.com (L) me2day.net (L) 26 yozm.daum.net (L) cyworld.com (R)
11 24
7 21
4 19
0 16 07 08 09 10 11 12
Source: Nielsen Koreanclick, KDB Daewoo Securities Research
KDB Daewoo Securities Research 20 March 8, 2012 Mobile Internet
Important Disclosures & Disclaimers Disclosures As of the publication date, Daewoo Securities Co., Ltd. has acted as a liquidity provider for equity-linked warrants backed by shares of NHN as an underlying asset, and other than this, Daewoo Securities has no other special interests in the covered companies. As of the publication date, Daewoo Securities Co., Ltd. issued equity-linked warrants with NHN as an underlying asset, and other than this, Daewoo Securities has no other special interests in the covered companies.
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 Daewoo Securities, 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 analystÊs 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.
(W) NHN 400,000
300,000
200,000
100,000
0 3/10 9/10 3/11 9/11 2/12
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 and regulations thereof. Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. Daewoo Securities Co., Ltd. policy prohibits its Analysts and members of their households from owning securities of any company in the AnalystÊs 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. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of Daewoo Securities, the Analysts receive compensation that is impacted 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 Daewoo Securities Co., Ltd. except as otherwise stated herein.
Disclaimers This report is published by Daewoo Securities Co., Ltd. („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 from sources believed to be reliable and in good faith, but such information has not been independently verified and 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. If this report is 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. Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from the use hereof. This report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. 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 and regulations or subject Daewoo and its affiliates to registration or licensing requirements in any jurisdiction should receive or make any use hereof. Information and opinions contained herein are subject to change without notice and 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 Daewoo. 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. 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. The price and value of the investments referred to in this report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur.
KDB Daewoo Securities Research 21 March 8, 2012 Mobile Internet
Distribution United Kingdom: This report is being distributed by Daewoo Securities (Europe) 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: This report is distributed in the U.S. by Daewoo Securities (America) Inc., a member of FINRA/SIPC, and is only intended for major institutional investors as defined in Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934. All U.S. persons that receive this document by their acceptance thereof represent and warrant that they are a major institutional investor and have not received this report under any express or implied understanding that they will direct commission income to 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 Daewoo Securities (America) Inc., which accepts responsibility for the contents of this report in the U.S. 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 document has been approved for distribution in Hong Kong by Daewoo Securities (Hong Kong) Ltd., 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 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 Daewoo and its affiliates to any registration or licensing requirement within such jurisdiction.
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Daewoo Securities Co. Ltd. (Seoul) Daewoo Securities (Hong Kong) Ltd. Daewoo Securities (America) Inc. Head Office Two International Finance Centre 600 Lexington Avenue 31-3 Yeouido-dong, Yeongdeungpo-gu Suites 2005-2012 Suite 301 Seoul 150-716 8 Finance Street, Central New York, NY 10022 Korea Hong Kong United States Tel: 82-2-768-3026 Tel: 85-2-2514-1304 Tel: 1-212-407-1022
Daewoo Securities (Europe) Ltd. Tokyo Representative Office Beijing Representative Office Tower 42, Level 41 7th Floor, Yusen Building Suite 2602, Twin Towers (East) 25 Old Broad Street 2-3-2 Marunouchi, Chiyoda-ku B-12 Jianguomenwai Avenue London EC2N 1HQ Tokyo 100-0005 Chaoyang District, Beijing 100022 United Kingdom Japan China Tel: 44-20-7982-8016 Tel: 81-3- 3211-5511 Tel: 86-10-6567-9699
Shanghai Representative Office Ho Chi Minh Representative Office Unit 13, 28th Floor, Hang Seng Bank Tower Centec Tower 1000 Lujiazui Ring Road 72-74 Nguyen Thi Minh Khai Street Pudong New Area, Shanghai 200120 Ward 6, District 3, Ho Chi Minh City China Vietnam Tel: 86-21-5013-6392 Tel: 84-8-3910-6000
KDB Daewoo Securities Research 22