Naver results fall far short of expectations in second quarter

Naver’s second-quarter net profit declined 70.7 percent on year to 158.5 billion won ($122.1 million), falling short of a market consensus of 320.6 billion won compiled by FnGuide.

The plunge was due to losses incurred by Naver investments amid a market struggling against global economic uncertainties and falling stock prices, the company said during a conference call on Friday.

It was also related to high webtoon customers acquisition costs.

“It is true that the internet platform companies have been seeing slower growth due to difficult outside factors such as a slowing economy,” said CEO Choi Soo-yeon. “Nevertheless, we have been working against the headwinds by focusing on our main businesses such as search engine, commerce and fintech.”

Revenue came in at a record 2 trillion won, 23 percent higher than the second quarter of last year.

Forty-four percent of revenue, or 905.5 billion won, came from its search engine, which was up by 9.3 percent on year. It was followed by the commerce division at 439.5 billion won, content at 300.2 billion won and fintech at 295.7 billion won.

Revenue of the content division, which includes its webtoon business and Snow camera app, rose 113.8 percent revenue. The increase was driven by new companies that Naver acquired this year — Korean web novel service Moonpia in March and eBOOK Initiative Japan, a Japanese electronic book company, in April.

However, the webtoon business lost 29.1 billion won because of the marketing and investment costs needed for acquiring more users.

Naver’s webtoon services had 85.6 million monthly active users as of the second quarter. Ten percent of users spent cash to read webtoons or web novels and spent an average of 13,000 won a month.

The gross merchandise volume (GMV), the total amount of web content sold, in the second quarter was 406.5 billion won. Of the GMV, 219.1 billion won was from Japanese readers, 150.2 billion won from Korean readers and 21 billion won from U.S. readers.

“Marketing costs needed in user acquisition have risen by 30 to 40 percent in recent months, but we’ve also been seeing a rise in both the number of users spending money and the amount they’re spending on average,” said Kim Nam-sun, chief financial officer of Naver.

The company will focus on improving its cash-cow search engine and advertisement businesses and also strengthening its partnership with Japan’s SoftBank through Z Holdings. It is seeking to expand collaboration with the Japanese company, such as by integrating Naver’s online commerce service onto Yahoo! Japan.

Third-quarter results may be even grimmer than the first half of the year, according to Choi.

“The third quarter has typically been difficult for us because that’s when companies cut down on their advertisement expenses after the first two quarters,” she said. “Outside uncertainties are also building up, and the outlook is bleak compared to last year. Still, we aim to achieve a double-digit growth percentage for the overall year.”

Naver fell 2.38 percent in trading Friday.

BY YOON SO-YEON [yoon.soyeon@joongang.co.kr]