Naver's Target Price Cut as Regulatory Delays, Rising Costs Overshadow Commerce Growth

Naver's commerce business is experiencing strong growth, partly fueled by an exodus of users from competitor Coupang.

However, delays in regulatory approval for its major blockchain venture with Dunamu are creating uncertainty and weighing on the company's valuation.

Simultaneously, significant investments in AI infrastructure (GPUs) and increased marketing costs are pressuring profitability, leading to a cut in its stock price target.

035420.KS

Samsung Securities recently lowered its price target for Naver, signaling that while its commerce business is thriving, its valuation is capped by new business delays and rising costs.

The bright spot for Naver is its commerce division. It has been significantly boosted by the 'Coupang exodus,' a trend where users and sellers moved to alternative platforms following a data breach at the e-commerce giant. This shift has directly contributed to Naver's strong commerce growth, estimated at 38% year-over-year for the first quarter.

However, this positive momentum is overshadowed by significant challenges. The primary issue is the regulatory roadblock for its new venture with Dunamu, the operator of Korea's largest crypto exchange. First, the National Assembly has postponed discussions on the 'Digital Asset Basic Act,' a key piece of legislation for their planned Web3, stablecoin, and token securities services, until after the local elections. Second, the Fair Trade Commission's review of the merger is taking longer than anticipated. These delays cloud the timeline and business model for the new venture, creating a major discount on Naver's valuation.

Compounding this issue is a sharp rise in expenses. Naver has committed to a massive investment of over 1 trillion won in AI infrastructure, particularly for securing up to 60,000 GPUs to power its HyperCLOVA X AI model. This is expected to weigh on profit margins throughout the year. Furthermore, costs related to strengthening its commerce business, such as expanding its free return program and deploying offline payment terminals (NPay CONNECT), are also adding to the financial burden.

In conclusion, the strong performance in commerce is not currently sufficient to outweigh the dual pressures of regulatory uncertainty in new ventures and escalating investment costs. This imbalance is the core reason behind the recent downward revision of Naver's stock price target.

P/E TTM: Price-to-Earnings Trailing Twelve Months. A valuation ratio that compares a company's current stock price to its earnings per share over the last 12 months.
CAPEX: Capital Expenditure. Funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment.
Digital Twin: A virtual model of a physical object or system. It is used to run simulations before actual devices are built and deployed.