Naver Earnings: Very Strong Underlying Profit; Fair Value Estimate up to KRW 272,000 on LY Corp.

Naver reported strong second-quarter 2024 revenue growth of 8.4% with operating profits up 27% year on year. Operating profits included one-time IPO-related costs for Webtoon, excluding our estimate of operating profits increasing 42% year on year to KRW 528 billion. The key drivers of second-quarter operating profit growth were the search and commerce businesses. They increased operating profit by KRW 77 billion, or 16% year on year. Moreover, the content business reduced its operating loss by KRW 48 billion to KRW 13 billion on an underlying basis (excluding IPO costs). We increased our fair value estimate for Naver slightly to KRW 272,000 per share from KRW 262,000, based on an increase in our LY Corp. valuation since our previous update. We see Naver's stock as undervalued at these levels. Our forecasts assume Naver increases its operating profit at an average of 13% each year over the next five years, and it is off to a good start, having increased its operating profit by 38% in the first half of 2024.