Naver's operating profit surges 27% in Q2

IT giant will maintain position as largest shareholder of Line, CEO says

Naver's headquarters building in Seongnam, Gyeonggi Province (Yonhap)

South Korean internet giant Naver on Friday reported record-high quarterly revenue of 2.6 trillion won ($1.91 billion) for the April-June period this year, thanks to profit increases in all of its major businesses including the search platform and cloud service.

During an earnings call, Naver Chief Executive Officer Choi Soo-yeon said the company will enhance the user experience by launching a “search feed” feature and adopting AI tools in the second half of the year. Choi also said the company will maintain its position as the largest shareholder of Line, its messaging app popular in Japan.

In the second quarter, revenue jumped 8.4 percent on-year while operating profit grew 26.8 percent on-year to post 472.7 billion won, the company said in the regulatory filing. The operating margin was 18.1 percent.

"We have strengthened our platform by offering differentiated experiences to partners in the Naver ecosystem by integrating key capabilities such as artificial intelligence, data and search, and saw the efforts leading to success in monetization as well," Choi said during the earnings call.

"We will continue to leverage AI and data to reinforce the capability of our core businesses and platform, and focus on identifying new business opportunities based on technology."

By business, Naver logged sales of 978.4 billion from its search platform, 719 billion won in commerce, 368.5 billion in fintech, 420 billion won in content and 124.6 billion won in cloud services.

Revenue from search grew 6.1 percent on-year following the company’s expansion in bidding for local ads, improvement in efficiency and enhancement in targeting search ads, the company said. With the Home Feed feature showcasing content from Naver's various services, the company increased the time users spend on its platform.

In Commerce, the company witnessed a revenue increase of 13.6 percent on-year, largely driven by the adoption of the Guaranteed Delivery service and brand solutions, as well as continued growth in Kream, its sneakers reseller platform.

Naver also fared well in content, with the revenue from paid content cartoons growing upon the record-high number of monthly paying users in Japan, the company said.

In the Cloud business, the IT giant saw the quarterly revenue grow 19.2 percent on-year, made from its collaboration with Neurocloud and Intel involving the AI model HCX.

As it signed a phase one digital twin contract with Saudi Arabia's Momrah in July, the company said it expects to see revenue contribution from the second half of this year.

During an earnings call, Choi discussed the company's plan to stay the largest shareholder of Line, following the controversy in which the Japanese government pressured Naver to shed ownership.

“It has become more clear that the Line-Yahoo incident happened largely due to the Japanese government’s concerns over security governance. We will likely stick to our original plans (for operation) and not consider changing the status of the largest shareholder or reducing business,” Choi said.

Japan's Ministry of Internal Affairs and Communications issued a rare guidance in February for Tokyo-based LY Corp., the operator of Line, to lower its dependency on Naver in the wake of a data breach incident last year. Currently, almost 70 percent of the Japanese population uses Line.

"The security guideline issued by the communications ministry is clearer, so the company management will develop ways to continue collaboration while fulfilling the ministry's criteria," Choi said.

Choi also revealed the company's plan to launch a "search feed" feature, under which users can research based on images and check the search trends, in the second half of the year.

“We will revamp existing services and release new ones related to search, shopping and content that meets the needs of the users to keep them longer on the Naver platform,” Choi said.

"As we are adopting the feed service and other popular services such as Clip and Chzzk to increase the user traffic and staying time."

As the company seeks to increase profit in advertising, Naver said it would use AI technology to introduce advanced tools for optimization and automation for advertisement clients to develop a convenient advertisement platform.

By Jo He-rim(herim@heraldcorp.com)