Naver Reports In-Line Third Quarter With Search Business Holding Up

Naver reported a strong third quarter with revenue up 26.9% and operating profit up 19.9% year on year. The key search platform business, which underpins Naver’s narrow moat based on intangible assets and network effect, reported revenue growth of 16.2% in the third quarter, a slight slowdown from first half’s 19.3% but still very solid. Despite a healthy consolidated operating profit margin of 20.3% driven mainly by the search business, management reiterated its key focus is on driving revenue growth and scale through its emerging businesses in commerce, fintech, content and cloud, and not on operating profit growth. We have upgraded our 2021 revenue forecast by around 8% but downgraded our operating profit forecast by 11%. Our long-term forecasts remain broadly the same, as does our fair value estimate of KRW 375,000 per share. The stock is up around 39% year to date and around 124% since the start of 2020, so it has had a very strong run and we see it as slightly over-valued at these levels.