Naver's Operating Profit Falls 21% on AI Investment; Signs KRW 2 Trillion Supply Deal With U.S. AI Firm

Naver posted record quarterly revenue in the third quarter this year, driven by growth in commerce, payments and global C2C. Consolidated third-quarter revenue announced on the 12th came to KRW 3.4724 trillion, up 10.7% from a year earlier and 2.5% from the previous quarter. Excluding the effect of incorporating Wallapop, revenue growth was 9.0%.

Profitability worsened as AI-related investment expanded. Third-quarter operating profit fell 20.9% year over year to KRW 451.3 billion. The operating margin also declined to 13.0% from 18.2%.

Net profit fell 45.2% to KRW 402.5 billion. Naver said operating expenses rose 17.7% as it expanded investment in infrastructure, content and offline data to secure AI competitiveness.

Naver signed a computing services supply deal worth about KRW 2 trillion with a U.S. AI reasoning company. The company said the contract will be reflected in earnings starting in the first half of next year.

Naver disclosed the size, term and equipment configuration of its first computing services supply deal related to AI Factory. The counterparty to the first computing services supply deal is a U.S. AI reasoning company, and the first contract is worth about 20MW. In the Q&A session of its earnings conference call, Naver said the contract term is about 4 to 5 years. The supplied items are NVIDIA B300 and the next-generation GPU platform, "Vera Rubin."

However, it did not disclose the client name or the supply price. Choi Soo-yeon, CEO of Naver, said initial-volume customers for 2027 have been secured. She also said revenue will begin to be recognized sequentially after the commercial service launch in the first half of next year.

Naver said it plans to supply contract volumes in stages. It also expects profit to expand gradually. The company added that it is securing business funding and data center capacity.

Naver said it completed an investment deal in computing infrastructure with Brookfield and also completed its participation in NVIDIA's paid-in capital increase. Choi said the data center capacity for which the contract has been completed exceeds the 2028 target previously disclosed. She also said the company has proactively secured a water-cooled data center capable of operating next-generation GPUs.

Naver is discussing server orders with NVIDIA to address demand for Vera Rubin and reduce procurement costs. It is also pursuing additional customer wins, and the companies under discussion for collaboration include more than 10 firms, including large AI model developers. However, it said further observation is needed regarding the results of the U.S. midterm elections. As of now, it judged the possibility of adverse business effects from the election results to be low.

On the service side, Naver is securing revenue from computing supply through AI Factory. In addition, in search and shopping, it is expanding the scope of AI links to actual transactions.

Choi said the flow from the AI tab into shopping and local services nearly doubled from the launch period. She added that actual transaction volume linked to the AI tab is also growing. She said the AI tab's revisit rate is rising every month, and the share of users who continue asking questions in a single conversation is also rising every month. The number of users of the shopping AI agent in September was about 5 times that of March, and the shopping AI agent's transaction volume in September was about 4 times March's level.

Naver operates a feature that shows coupon-adjusted prices, a feature that shows membership point-earning benefits, and a feature that indicates expected delivery timing. It plans to add payments to those guidance features. Choi said the company plans to pilot in-agent payment experiences in the fourth quarter.

Naver is aiming to launch a personal AI agent app within this year. The app will link with shopping, places, reservations, maps, Naver Pay and its own APIs. It works by identifying user intent based on search, reviews and transaction history, then carrying out the requested task.

Choi said the company is preparing to enable unlinked external services to be handled directly in response to user requests in a sandboxed browser environment. Payment and reservation confirmations in the personal app are decided directly by the user. Email sending and schedule registration in the personal app go through a confirmation step before execution.

Based on secure storage of user data and the design for handling requests to external websites, Choi said the company sees potential for future global expansion of the service. Meanwhile, Naver established a logistics subsidiary. Third-quarter SmartStore transaction volume rose 6.4% from a year earlier.

Choi said the Naver Plus Store app accounted for more than 20% of third-quarter SmartStore transaction volume. The transaction share of the Plus Store app exceeded 20%. Choi said the Naver Plus Store app's share was about 3 times higher than a year earlier.

The number of purchases per visit by app users rose about 50%. Among app purchasing customers, the share of membership users exceeded 80%, marking the highest level since the service launched.

Against this backdrop, Naver is pursuing the establishment of a logistics-focused subsidiary to strengthen delivery competitiveness and is moving to expand its delivery network centered on leased logistics centers. Existing partners handle center operations and delivery, while Naver leads system and infrastructure design.

Naver forecasts demand based on shopping search and order data and applies a method of placing inventory near users. Choi said she expects investment of close to KRW 1 trillion will be needed through 2030, and that the company plans to establish an appropriate financing method and profit structure. She also said it plans to design the impact on cash flow and earnings to be limited.

Along with these service enhancements, revenue also increased in the third quarter. Naver platform revenue in the third quarter rose 7.3% to KRW 1.9484 trillion, and ad revenue increased 5.5% to KRW 1.4748 trillion. Service revenue rose 13.1% to KRW 473.6 billion, helped by the expansion of Plus Store and membership usage and by stronger N delivery.

In the financial segment, Naver Pay payment volume rose 15.6% year over year to KRW 26.2 trillion, driven by a 21.8% increase in external payment volume from a year earlier, and financial platform revenue also increased 14.1% year over year to KRW 487.7 billion. Naver Financial aims to expand the rollout of "Npay Connect" with a target of the first half of next year, with the goal of becoming No. 1 in terms of the number of active terminals in South Korea's integrated offline terminal market.

Revenue in the global challenge segment increased 15.9% year over year to KRW 1.0364 trillion. Of that, C2C revenue rose 47.8%, driven by Wallapop's inclusion and the expansion of Poshmark and Soda transactions, while enterprise revenue increased 33.0% year over year to KRW 193.3 billion, helped by Saudi Arabia's digital twin business and others. Content revenue, however, fell 5.1%.

Naver is using the digital twin built in Saudi Arabia for local deliveries. It applied digital twin data to Naver Labs' outdoor delivery robot, "Nuri," and carried out driving demonstrations and user tests for "Nuri" in a residential complex in Riyadh. Naver aims to launch a robot delivery service in the first half of next year in connection with "Balady Plus," a local map-based lifestyle service app.

Future profitability will hinge on how much of AI Factory's initial revenue turns into profit and on the performance of the commerce segment. For AI Factory, after the first contract revenue starts to be reflected in the first half of next year, whether additional contracts are secured and the data center utilization rate will affect how quickly AI infrastructure investment costs are recouped. For commerce, the key question is whether the introduction of shopping AI payments and the expansion of the delivery network lead to actual purchase growth and repeat purchases.

Source: TECHWORLD · Kim Seung-gi
Original: https://www.epnc.co.kr/news/articleView.html?idxno=409651

References

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