Naver says no growth sacrifice to cut costs with record sales

Naver Corp., South Korea’s largest online portal, on Friday reported its largest-ever quarterly revenue, led by webtoon and fintech services, but its aggressive global marketing drove its net profit sharply lower.

The results followed its string of acquisitions last year. The companies Naver purchased in 2021 ranged from the world’s largest web novel platform Wattpad Corp. to the No. 2 US webtoon platform Tappytoon, South Korea’s No. 3 web novel platform Munpia Inc; and Korean virtual human maker LOCUS Corp.

Its preliminary second-quarter sales leapt 23% on-year to 2 trillion won ($1.5 billion) on a consolidated basis, according to its regulatory filing.

It was the first time for its sales to exceed 2 trillion won, excluding the revenue from Naver’s Japanese chat app operator LINE. Naver has not reflected the latter’s results since the third quarter of 2021 after its Japanese arm was merged with Softbank’s Yahoo Japan.

However, Naver's second-quarter net profit plunged 57% on-year to 259 billion won due in large part to the base effect. The year-earlier net profit reflected earnings from the Japanese unit LINE.

Also, its aggressive global marketing weighed on the profits. But Naver's Chief Financial Officer Kim Nam-sun shrugged off the marketing costs.

"We are not in the stage of sacrificing growth to narrow losses," he told an earnings call.

Instead, Kim hinted at another round of M&As to expand beyond the content business.

"We are keeping an eye on commerce and business-to-business solution markets," he said. 

Its content business, including web novels and webtoons, posted a 114% surge to 300.2 billion won in revenue. But the division's global business reported a 29.1 billion operating loss, eclipsing an 18.3 billion profit from the South Korean market. The figures exclude those from Toronto-based Wattpad.

Despite the sluggish global content business, Naver CEO Choi Soo-yeon said at the earnings call that its paid subscriber number has been steadily increasing to account for more than 26% of domestic webtoon users. In other markets such as Japan and the US, the paid subscriber count stood in the single digits but is continuing to grow. 

Naver's active monthly user count reached 85.6 million at the end of June worldwide.

“Webtoon has become our solid business model generating a 20% profit margin at home,” Choi Soo-yeon said. She took over as CEO early this year.

“Our goal is to create a similar level of operating profit margins globally within the next two to three years.”

Naver will step up its efforts to utilize the intellectual property rights of its webtoon and web novels as a growth pillar.

"Through My Window" produced by Naver’s Wattpad Webtoon Studios topped the list of films on Netflix Inc. in 22 countries since its release in June of last year. The studio will roll out more than 120 movies based on Naver’s original content.

Second-quarter operating profit edged up 0.2% to 336.2 billion won from the year previous.

With a market value of 44 trillion won, Naver has been expanding into shopping, entertainment and financial services.

Last month, Kream, Naver's resale platform, agreed to buy a stake in Malaysia’s biggest sneaker resale community Shake Hands for $1.7 million.

Naver's search platform accounts for 45% of its quarterly revenue, or 905.5 billion won, driven by advertising revenue. But its year-on-year sales growth stood at 9.3%, below the double- or triple-digit growth in other operations: online content, e-commerce, fintech and cloud storage services.

The fintech division's revenue grew 27.1% on-year to 295.7 billion won, boosted by growing settlement services.

Write to Seung-Woo Lee at Leeswoo@hankyung.com
Yeonhee Kim edited this article.