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Edited Transcript of 035420.KS earnings conference call or presentation 27-Apr-17 12:00am GMT

Thomson Reuters StreetEvents

Q1 2017 Naver Corp Earnings Call

Gyeonggi-do May 3, 2017 (Thomson StreetEvents) -- Edited Transcript of Naver Corp earnings conference call or presentation Thursday, April 27, 2017 at 12:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Ki Seon Cho

* Sang-Jin Park

* Seong-Sook Han

Naver Corporation - CEO, President and Director

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Conference Call Participants

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* Han Joon Kim

Deutsche Bank AG, Research Division - VP and Research Analyst

* In Young Chung

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Jay Han

BNP Paribas, Research Division - Research Assistant

* Jee-Hyun Moon

Mirae Asset Daewoo Securities Co., Ltd., Research Division - Research Analyst

* Seungjoo Ro

CLSA Limited, Research Division - Research Analyst

* Stanley Yang

JP Morgan Chase & Co, Research Division - Analyst

* Taewon Kim

UBS Investment Bank, Research Division - Director and Research Analyst of Internet and Gaming

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Presentation

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Operator [1]

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(foreign language) Good morning and good evening. Now we will begin the conference of the fiscal year 2017 first quarter earnings results by Naver. Today's conference call will be consecutively interpreted for the convenience of domestic and international investors. The conference call will include a summary of first quarter earnings followed by Q&A session.

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Ki Seon Cho, [2]

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(foreign language) Good morning. I am Ki Seon Cho, Director of IR and Asset Management. Thank you for joining Q1 2017 earnings presentation. With us today are our CEO, Seong-Sook Han; CFO, Sang-Jin Park; and [In-Chap Jae,] Director of Business. The earnings results are based on K-IFRS standards provided for timely communications and are yet to be audited by an independent auditor and so are subject to certain changes after the review. We will begin the reporting on Naver's business highlights followed by reclassification of operating revenue and expense and financial results.

Let me invite our CEO, Han, for the business update.

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Seong-Sook Han, Naver Corporation - CEO, President and Director [3]

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(foreign language) Good morning, I am Seong-Sook Han, CEO of Naver. Thank you to our investors for joining our earnings conference call today. Naver is in the process of building up its unique capabilities as a technology platform as we make attempt at various fronts based on AI technology. As introduced beginning of April during the third colloquium, AI technology is already deeply seated in many aspects of Naver search, and we are trying to bring and apply AI to other areas aside from search services.

(foreign language) [Naver I,] a conversation AI engine, with its data version launched end of February, brings conversation management technology to the existing technologies of search, voice recognition, voice synthesis and query analysis. As a service that connects to Naver's extensive database, a conversational search will give you weather information, read a news article, translate, run applications, and recognize and find the music for you. We are focused on finding the most appropriate usage flow and scenario for conversational search to further evolve [Naver I] and will expand into diverse areas including shopping orders, reservations and finding routes, which are deemed to be most appropriate for such services.

(foreign language) Also, AiRS, which is a AI-based recommendation system, has been applied to news and sports news recommendations in the mobile main screen as a pilot and will also be applied to parts of the entertainment news segment. On top of news, we will focus on upgrading service quality by merging with various contents of Naver, such as videos of Naver TV, Webtoons, movies, music and shopping. As AiRS' embedded content and users increase, we expect recommendation quality to also improve. Naver's AI technology amid constant change will be introduced as Naver Clova app, based on Naver and LINE's cloud AI technology platform called Clova, as we embark on experiments in identifying and connecting different user flows that are created in so many spaces of our lives.

(foreign language) We are also preparing AI technology-based Naver keyboard launch, which will allow people to use Naver search and Papago directly from the mobile keyboard. We also plan to actively use AI to improve quality of shopping searches. And within the first half of the year, we will offer image search, enabling users to upload a photo in the search box to search for products and objects in the picture. And in the third quarter, when a product photo is uploaded, the product and the shopping mall will be identified for the user and we will even be adding payment and purchase functions.

(foreign language) Beginning of this year, NAVER LABS became an independent entity and showcased M1, which is an indoor, high-precision mapping robot, autonomous vehicle and in-vehicle infotainment platform, as well as other ambient intelligence technologies at the 2017 Seoul Motor Show. Ambient intelligence is a technology reaching beyond the online space, which provides the information needed based on the recognition and understanding of various circumstances environment of our everyday life. To enable this technology, NAVER LABS will research into next-generation mobility solutions and continue to bring information into our living spaces through the conversions of artificial intelligence and robotics; and open our IVI, in-vehicle infotainment platform, so as broaden cooperation with growing number of partners.

(foreign language) Our subsidiary NBP, which manage the infrastructure, security, IDC services for Naver, LINE and other affiliates, launched Naver Cloud Platform, signaling the start of its cloud business. It introduced around 30 different basic infrastructure products -- including computing, data, security and network, and plans to add 4 to 5 products every month leveraging its technology, system and operational know-how. Also, we plan to add platform products one by one to develop Naver's open API product and services like search, voice recognition and map. We will also focus on business tools development upgrades for small and medium-size merchants and business partners.

(foreign language) Over the years, Naver has built big data through its search services. And as this technology infrastructure meets the realm of AI technology, such as deep learning and artificial neural network, the company is making a leap forward. With an improved AI technology, we can uplift the technology on processing of natural language and image analysis which leads to a better search quality. We also see improved quality in personalized recommendations. As such, there are positive synergies.

Naver will transform and develop into a technology platform through which we can provide a space that benefit and support the users, creators and businesses. I ask for the investors' continued interest and encouragement. Now our CFO, Sang-Jin Park, will present on the financial results.

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Sang-Jin Park, [4]

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(foreign language) Good morning. I'm CFO, Sang-Jin Park. Before going into the results, let me first brief you of the changes that we've get made on the classification of operating revenue and operating expense. We at Naver have previously classified our operating revenues as ads, contents and others. But as LINE went public and with fast growth of Naver Shopping and Pay, and as NBP launched its cloud platform, we are undergoing many changes. So in order to reflect such changes in the business and in the environment, we felt it was necessary to provide the same basis as used for our internal resource management purposes; and better, in terms of the use and transparency purposes of the earnings release. And as such, we did change to a more integrated classification.

(foreign language) Basically, consolidated operating revenue and expense are broken down first into Naver, LINE and Other platform. The Naver's operating revenue is reclassified an Ads, Business Platform, IT Platform and Content Services. Operating expense is classified as Platform Development & Operations, Agency & Partner Commission, Infrastructure and Marketing. Ads basically corresponds to DA, Shopping DA, Naver TV video ads and other CPM products. Business platform corresponds to search, shopping search and other CPC and CPS products. IT platform includes NAVER Pay, IT service, cloud and WORKS. And Content Services include Music, Webtoon and V LIVE among others.

(foreign language) For operating expense, Platform Development & Operations include internal resource-related expenses, which relates to Naver platform development and operations as well as labor cost and benefit. Agency & Partner Commissions are mostly external resources expenses, such as commissions and sales, payments and content. Infrastructure includes operational expense, such as depreciation and telecommunications cost and related labor cost. Marketing includes advertisement and promotion expenses used to promote our services. And the company's investment into technologies and content are classified as R&D, CapEx and other investments.

I hope through these changes you would be -- you will have a more integrated view and easier understanding of our business and the use of our resources rather than just a simple summary of financial data. For more details, please refer to our website. And now, I will present on the results for Q1 2017.

(foreign language) Q1 consolidated operating revenue was up 15.5% year-over-year and down 0.3% Q-on-Q to KRW 1,082.2 billion. Out of Q1 consolidated operating revenue, Ads accounted for 9%; Business Platform, 47%; IT Platform, 4%; Content Services, 2%; and LINE and Other platform, 38%. On the consolidated operating expense, Platform Development & Operations accounted for 18%; Agency & Partner, 24%; Infrastructure, 6%; Marketing, 5%; and LINE and Other platform took up 47%.

(foreign language) For Ads revenue, driven by mobile product improvement and low base effect from the first half of last year, it increased 22.3% year-over-year, but fell 18.9% Q-on-Q due to slow seasonality, recording KRW 99.7 billion. On stronger mobile search, product enhancement and continued rise in shopping query, Business Platform recorded a growth of 13.3% year-on-year and 3.7% Q-on-Q, recording KRW 509.7 billion. On sustained growth from NAVER Pay and other matrix, IT Platform revenue was up 91.9% year-over-year and 11.3% Q-on-Q, reaching KRW 43.4 billion. Content Service revenue declined 23.7% year-on-year due to app store transfer of business, but edged up 4.2% Q-on-Q on V LIVE new product launch, recording KRW 23.5 billion. LINE and Other platform was up 15.2% year-over-year but down 0.8% Q-on-Q, recording KRW 406 billion.

(foreign language) Q1 consolidated operating expense was up 16.3% year-over-year and down 0.4% Q-on-Q coming in at KRW 791.4 billion. Platform development and operational expense was up 4.2% year-on-year and 15.8% Q-on-Q, recording KRW 140.6 billion on new hires. Agency & Partner expense, driven by Naver Shopping and NAVER Pay volume growth, was up 20.3% year-over-year and 0.9% Q-on-Q, recording KRW 186.3 billion. Infrastructure expense was up 6% year-over-year due to usage fee and depreciation rise, recording a similar level as last quarter at KRW 49.3 billion. On TV advertisement for Naver services, Marketing expense edged up 7.2% year-over-year but was down 10.6% Q-on-Q at KRW 40.3 billion. LINE and Other Platforms expense saw a rise of 22.3% Y-on-Y and was down 4.9% Q-on-Q, coming in at KRW 374.9 billion.

(foreign language) Consolidated operating profit was up 13.2% year-over-year and 0.2% Q-on-Q, recording KRW 290.8 billion with margin at 26.9%. Net profit was up 27.8% year-over-year and 15.4% Q-on-Q to KRW 210.9 billion with net income margin at 19.5%. R&D investment was up 12.8% year-over-year and 12.3% Q-on-Q coming in at KRW 276.6 billion. CapEx rose 199.8% year-over-year and 13.4% Q-on-Q to KRW 74.9 billion. In terms of investments into technology and content, we invested KRW 107.7 billion to Epipolar, a 3D mapping company; and SoundHound, a voice technology company.

That brings me to the end of Q1 results, we will now entertain questions.

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Questions and Answers

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Operator [1]

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(foreign language) (Operator Instructions) (foreign language) The first question will be provided by Stanley Yang from JPMorgan.

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Stanley Yang, JP Morgan Chase & Co, Research Division - Analyst [2]

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(foreign language) I have a question on the -- first of all, the NAVER Pay GMV. I understand that as against the pre-reclassification basis, I saw in your presentation that the Pay GMV will be around KRW 1.5 trillion. What is the percentage of -- or the take-up of [Store] fund against the total GMV base? And also, can you share with us the topline figure for Naver Shopping as well? You used to do that in the past. And in terms of also the shopping search after the launch, I would like to understand what the topline looks like. Second question has to do with your new technology platform of AI and cloud, as the CEO has mentioned. I would think that is quite clear that, in Korea, NAVER is truly a leading company in terms of the AI technology. So there is no doubt that in a long-term perspective, this will have positive impact on the corporate value. But what about the short-term cost burden? So I understand that this year, you were planning to invest about KRW 500 billion, I would like to understand how much will be invested into AI and technology platform. And when do you think is the timing for monetization from such technologies? When would you commercialize such services? And in what form or from where would you be seeing the inflow of revenue?

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Seong-Sook Han, Naver Corporation - CEO, President and Director [3]

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(foreign language) So for -- in terms of Naver Shopping and NAVER Pay, if you look at Naver Shopping GMV, if you look at the first quarter numbers on a year-over-year basis, we posted a robust growth of 46.4%. And -- but there's a bit of an overlap. But if you look at NAVER Pay, there was a year-over-year growth of 108.1%. And in terms of the shopping search advertisement, which we launched November of last year...

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Sang-Jin Park, [4]

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(foreign language) So if you look at some of the data as of March, we see about 12,000 partners that are making use of the shopping search advertisement. And also, we see a very robust growth in terms of different purchase matrix, number of clicks and people's response to the rewards. So going forward, in terms -- there is a bit of cannibalization with the existing search. But going forward, we are quite certain that this would have a very positive impact in the overall search Ads growth, that we will be quite cautiously trying to expand on this service. (foreign language) Responding to your second question about our investments into AI and technology platform and the timing on monetization. In the fourth quarter, we communicated that we have [satisfied] around KRW 500 billion for investment for the coming 5 years. So if you just do the simple arithmetic for this year, we will be probably investing 1/5 of that figure. In terms of the AI platform investment, we have invested about 40% of the KRW 177 billion, which we mentioned previously. And so for this year, we expect there to be in excess of KRW 100 billion investment into AI platform. (foreign language) So in terms of your question on when we would begin to monetize. As you know, Naver wishes to be a platform that provides products and services anytime, anywhere for the use of all of our users. Under such future direction, we're making investments into becoming a technology platform. And once this plan is materialized, we are most certain that it will be connected to monetization opportunities. Having said that, trying to specify the timing at this point, we think, is a bit too early.

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Stanley Yang, JP Morgan Chase & Co, Research Division - Analyst [5]

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(foreign language) You mentioned KRW 177 billion, what was that figure? And if you do 40% of KRW 177 billion, that amounts to KRW 40 billion to KRW 50 billion. But then again, you said that this year, you're planning to spend at minimum KRW 100 billion in AI technology. So can you elaborate a little more on what these numbers signify? And in terms of the cost and expenses, they would come under OPEX, correct?

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Sang-Jin Park, [6]

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(foreign language) So since you asked a question by mentioning KRW 500 billion over the coming 5 years, I mentioned KRW 177 billion, which was mentioned during my presentation when I talked about the Q1 investment-related amount, that's why I mentioned 40% of KRW 177 billion. And the investments into AI and technology platform will be captured under investment R&D as well as, of course, OPEX.

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Operator [7]

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(foreign language) The following question will be presented by Jee-Hyun Moon from Mirae Asset Daewoo.

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Jee-Hyun Moon, Mirae Asset Daewoo Securities Co., Ltd., Research Division - Research Analyst [8]

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(foreign language) So trying to post questions. First, you've separated out Ad platform with Business Platform, can you explain as to the background why you've decided to do that? And also, I would like to understand the amount of contribution that video ad is making into your overall ad revenue. We see that the contribution level is probably going up and also we see betterment of the investors' settlement -- sentiment on this segment. And secondly, I would like to understand your strategy and current status in terms of your overseas services. For instance, on V LIVE, Snow, and I understand that you're planning to also spin off your Webtoon business. So can you provide some more color on your overseas services?

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Seong-Sook Han, Naver Corporation - CEO, President and Director [9]

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(foreign language) You asked, well, about why we have them categorized our operating revenue as Ads, Business Platform and IT Platform. As I mentioned at the very beginning in my presentation, our old way of classifying was into ad, content and other, which was a -- quite a bit of an old-fashioned approach. But as LINE got listed and as we see more diverse business portfolio of NAVER -- including Shopping, Pay, cloud business, et cetera, we felt that it would be necessary to reclassify these accounts.

(foreign language) Then I think your question is much more focused on why we've decided to separate ad and business platform. When we say ad revenue, basically the definition of ad is based on conventional definition of advertisement. As NAVER users move around on all platforms, there are certain ads that they will be exposed to and that's what we mean by advertisement. (foreign language) The way we see business platform is: on the one side we have advertisers and people who sell products and their business strategies; and on the other, there are users who have this need to search for information and to compare different products and prices. We feel that we are a search platform that connects these 2 points and we consider this as a business model. That's why we called it the business platform.

(foreign language) In terms of the video ads, despite the fact that the first quarter is an off-season, thanks to the popular The Queen of Ring and also some other popular content, we were able to see a year-over-year growth of 36%. (foreign language) So for NAVER TV, we will be focusing on bringing about cooperation across different creators, and also therefore, we want to create an ecosystem for these video contents that will satisfy both the users as well as the creators as well. So for the time being, we're going to focus on expanding our content base and improving the usability. So from a short-term perspective, it will be difficult for us to expect a very fast top line growth. Having said that, in 2017, we still expect that there will be some sustained growth as we really focus on original ad product other than the existing VOD product.

(foreign language) Responding to your second question about our overseas service strategy and client status, I would like to break that down into different services. First, let's begin with Webtoon. We are #1 in terms of market share in the domestic market thanks to our excellent creators as well as the Webtoon titles. And on a global basis, the monthly users are around 35 million, so quite healthy. (foreign language) In terms of this overseas Webtoon service, we're currently providing the service in 27 countries around the world and providing 870 different titles of service. And it's quite popular in the United States, Indonesia, Thailand, Taiwan and Japan. We're seeing very good performance come through from such countries. And so based on this, we will also focus on really bonding through the fast-paced change in the Webtoon and web novel markets as well, and we wish to go beyond these segments and try to expand into other types of the creators -- creative products that include videos, games and even performances. And in order to achieve that goal, we've decided to actually spin off our company as of May 1, and it will become an independent entity after that point in time.

(foreign language) In terms of V LIVE, as of end of March, cumulative downloads reached 34 million, and this is part of the impact or the outcome that we've seen thanks to the Korean culture wave. So these contents are very popular in China, Japan, Taiwan and Thailand. And we see monthly users at 18 million. And of the total download, the overseas download accounts for 83%. (foreign language) In terms of monetizing on V LIVE, we started from the second half of last year. We've added V LIVE Plus, and also there are sticker merchandise and product, which have been very well received by the market. So we've seen some growth in the merchandise revenue. Although not in absolute terms, we still expect that there will be a gradual and continuous growth going forward. (foreign language) Of course, as you know not only in Korea but also in overseas markets of China and Japan it's been well received. And so as of end of March, we see cumulative downloads at 114 million, but still it is only at its beginning stage. So at this point, user acquisition is quite important so we are going to really expand on fun content and also enhance our communication function.

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Operator [10]

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(foreign language) The follow-up question will be provided by Han Joon Kim with Deutsche Securities.

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Han Joon Kim, Deutsche Bank AG, Research Division - VP and Research Analyst [11]

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(foreign language) I have 2 questions. First, I also agree that AI will become an important part of NAVER's sustainable growth for the future. But in terms of the cloud services, it seems to be that your position is to push cloud services also going into the future. But cloud, as you know, is a quite broad segment and there are already existing incumbents in this market. So what is your goal in terms of doing this cloud business? And do you also plan to expand into the B2B cloud segment as well? Second question is a relatively simple question. With this reclassification, I would like to understand your profitability for each of these accounts. I would think during the month, advertisement you will enjoy around 35% margin, biz platform 45%, IP platform, probably at only BEP or slightly in the red, and in content around 10% of margin. Can you at least provide us a ballpark figure as to the margin for each of these businesses?

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Seong-Sook Han, Naver Corporation - CEO, President and Director [12]

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(foreign language) So you asked about how our goal and strategy in terms of doing this NAVER cloud business. As you know last week, our NBP, our subsidiary introduced and opened NAVER cloud platform. Basically, NAVER has some knowhow and capability in search, mail, messenger, video and games, and also we have competitive edge as compared to our global peers. And we have understanding of what customers prefer. And also we have understanding of the business that we engaged in. Based on all these know-how and experience, we feel that we can very easily implement this service. (foreign language) So we've introduced the basic suite of products but we will also continue to develop more products and depend by the technology system and know-how of NBP. And in line with our customers, our global entrants, we will be providing them with global service products. So by the end of this year, we wish to have a coverage that's commensurate to other global cloud businesses. (foreign language) Because we're only at the beginning stage, rather than setting our top line target, we are focused on first completing our product lineup so that we can be at a level where we could compete with our global competitors. And what will be important for us for the time being is to be recognized, accepted and trusted by our customers in terms of the technology and the products that we provide. (foreign language) And you asked about the margin for each of the platforms and businesses as based on the reclassified organization or reclassified accounts. As you know, these platforms and the NAVER services, they are very much organically merged with one another. So it is not very easy to carve out that figure, but we are attempting to calculate this. But please understand that we won't be able to share any specific figures with you at this point.

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Han Joon Kim, Deutsche Bank AG, Research Division - VP and Research Analyst [13]

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(foreign language) Just 1 follow-up question, you used the word customer when you talked about the cloud business. You were probably referring to a B2B customer right, not B2C?

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Seong-Sook Han, Naver Corporation - CEO, President and Director [14]

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(foreign language) Yes, basically it refers to B2B customers, but even before the launch of NAVER cloud platform, we had NAVER cloud, which is a B2C service. So we are not precluding B2C.

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Operator [15]

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(foreign language) The following question will be presented by Jay Han from BNP Paribas.

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Jay Han, BNP Paribas, Research Division - Research Assistant [16]

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(foreign language) My first question is your shopping SA seems to have performed quite well. I would like to understand the percentage of shopping SA from your Q1 business platform. And do you consider increasing the ad load going forward? And under LINE and other platforms, I think this includes Camp Mobile and Snow as well. And I think for instance, if you look at Snow, there is a quite a bit of, we think, a cost increase. So not now, but when the timing comes for monetization of Snow, wouldn't there be a initial, I guess, surge in the cost that is required, expense that is required with Snow? And would that have any meaningful impact on the consolidated profits there for NAVER? Because we've experienced this similar thing in the past with other companies as well. So can you provide some color as to the cost and expenses relating to Snow?

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Seong-Sook Han, Naver Corporation - CEO, President and Director [17]

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(foreign language) In terms of the percentage of shopping SA out of the biz platform revenue, the absolute figure is not that big. But what I can say is that its contribution to the overall growth rate of biz platform is quite significant. On ad load, we are seeing improved -- an improvement in quality and more expanded advertisement. And also, we expect there will be more increases in the advertisers as well. In the second half, actually, we've been controlling exposures to a certain segment like the digital consumer electronics. But that would be adjusted so there will be some impact from that as well.

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Jay Han, BNP Paribas, Research Division - Research Assistant [18]

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(foreign language) Responding to your second question on LINE and other line item, on Snow and BAND and its cost structure in the platform, if Snow continues to grow and once our monetization business model becomes much more, I guess, much more materialized, of course, there will be increases in the company marketing costs. But having said that, if you look at the headcount structure of Camp Mobile, it is quite small compared to the overall NAVER headcount figure. So aside for marketing, another big cost item will be labor costs. But since that is not that significant, I do not believe that on a consolidated basis, it will have any meaningful impact on NAVER's numbers.

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Operator [19]

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The following question will be presented by Taewon Kim from UBS.

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Taewon Kim, UBS Investment Bank, Research Division - Director and Research Analyst of Internet and Gaming [20]

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(foreign language) My question has to do with shareholder return policy. If you look at LINE and as profits actually normalized, we've seen some increases in free cash flow. And if your 5-year investment plan is as what you have communicated, I would think that there would be significant -- or certain amount of surplus cash. What are your plans to make use of this? Any plans for dividends or share buyback? Samsung Electronics actually announced that it will cancel its treasury shares in the amount of 40 trillion. You also have quite a bit of treasury shares. Do you have any plans for cancellations or buybacks?

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Seong-Sook Han, Naver Corporation - CEO, President and Director [21]

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(foreign language) So NAVER's shareholder return policy has been quite consistent since 2009. NAVER on a stand-alone basis, based on its net profit, will be paying dividend or doing share buyback, 30% was our shareholder return policy, and we will keep to that plan. So our priority is to do share -- treasury share buyback. So at this point, we are not contemplating any specific calculations at this point. But from a long-term perspective, it is something that we might be able to consider.

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Taewon Kim, UBS Investment Bank, Research Division - Director and Research Analyst of Internet and Gaming [22]

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(foreign language) So once again, let me make it clear that we're not considering any share cancellation. And also, if LINE profit actually grows they will make use of that proceed to make its dividend payout to its shareholders. NAVER will not be taking LINE's profit and paying that out to its shareholders.

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Operator [23]

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(foreign language) The following question will be provided by In Young Chung from Goldman Sachs.

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In Young Chung, Goldman Sachs Group Inc., Research Division - Equity Analyst [24]

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(foreign language) My first question, can you share with us some of the specific indicators for each of the revenue line items, for instance for ad? What are the growth rate for you CPM and impression? And where are the growth drivers for business platform, for instance, GMV growth rate and CPS growth rate? And also, where do you see the growth drivers coming from, and what are your forecasts going forward for these indicators? And second, under the reclassification, can you provide us with some growth guidance? In Q1, I understand that the mother company margin is around 40%. Can we expect the same level as we go forward into the second quarter and you mentioned KRW 177 billion of investment in terms of -- after taking account the expensing aspect, what would be the impact that it will have on the margin?

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Seong-Sook Han, Naver Corporation - CEO, President and Director [25]

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(foreign language) In terms of your question about our advertisement and business platform long-term growth aspect, let's first begin in ad, which is the CPM product. On a year-over-year basis, we've seen in Q1 22.3% growth rate. Based on in terms of the advertisement, based on the premium inventory, we will be able to defend our PC-based revenue and also continue to grow in terms of the mobile platform. But there are limitations in terms of NAVER talk traffic as well as the whole boundary or the whole scope of the advertisement. And so that upside potential will be limited to a certain extent. So we will be making use of our efforts in securing additional inventory and also strengthening our targeting to compensate for or to push up the growth a little more.

(foreign language) In terms of the business platform, shopping GMV growth was, as I mentioned during my presentation, out of the total revenue for business platform, SA actually account for quite a bit of portion, our power link account for quite a bit of percentage. And this whole thing is also interrelated with PCC and number of clicks. In terms of these indicators, we are seeing a gradual bit-by-bit growth. And as we improve on the service quality and as we see improvement in the outcome from such improvement in service quality, we believe that we can expect a further increase in number of queries and number of clicks. (foreign language) You asked for guidance as under the new classification. But as you know we did not provide any guidance under the prior classification. So please understand it will be hard for us to provide you with the guidance that you've requested. And also, you asked about the margin on a NAVER stand-alone basis taking aside -- taking away LINE and other platform, and we will be able to continue that margin rate as we've seen in the first quarter. Of course, with more marketing and more investment, the margin can slightly edge down, but we do not expect any significant changes in the current margin level.

(foreign language) You talked about the KRW 177 billion investment that is capitalizing without having any impact on the OP margin. Our R&D cost most of it is -- our R&D cost is accounted for as an expense for that period, so and also, if you look at 177 billion, the investment that to be made into AI and startup, they are mostly in the form of making fund investment and equity investment. And of our investment into content and other small business startup investment, basically they are invested and accounted for, as for that quarter or that period. So of course, if there's any impairment loss, then that will eventually will have to go under the nonoperating expense and that will erode, to a certain extent, the profit but it goes into nonoperating expense, so there is really limited possibility that it will erode our profit base.

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Ki Seon Cho, [26]

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(foreign language) Due to time constraint, we will take the last and the final question.

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Operator [27]

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(foreign language) The last question will be provided by Seungjoo Ro from CLSA.

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Seungjoo Ro, CLSA Limited, Research Division - Research Analyst [28]

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(foreign language) Recently, there has been some change in the BODC the head of Humax, Mr. Byun Dae-Gyu has become the Chairperson of your Board of Directors. And so we'd like to understand what his role and responsibility is going to be, especially in light of the R&R of your founder Hae-Jin Lee. Also LINE has announced that in -- come summer, it's going to launch AI-based speakers in Japan and Korea that will afford the accompanying expenses. I would like to understand how LINE and NAVER will be sharing the cost that is incurred?

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Seong-Sook Han, Naver Corporation - CEO, President and Director [29]

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(foreign language) Yes, there has been a recent change in our BOD compensation. Chairperson Byun Dae-Gyu, he has extensive experience as an outside director in many of the large companies and large institutions. And so we expect that we will be able to gain his advice and recommendations on various fronts of our business. Our former Chair, Hae-Jin Lee, has withdrew from the chairperson status of the BOD but he will continuously lead our global investment and our future strategy-related initiative. And our CEO Han, as a service expert, will focus on further strengthening NAVER's competitiveness in terms of its service and technologies, so that it may prepare itself to leap forward as a global company. (foreign language) So the product that's going to be developed by our Clova task force team, the R&D expenses and investments that will be made, you asked about the size and how NAVER and LINE are going to share these amongst themselves. Now Clova is a joint cloud-based AI platform that NAVER and LINE is jointly developing. So of course the relevant cost will be co-shared between the 2 entities. But because we're only at an infant stage, it will be difficult to provide some color as to the size of this expense. Having said that, we are making use of our internal expertise and internal resources, so we do not expect additional cost to be that significant. In terms of the speaker that you've mentioned, we're in the preparation to actually manufacture and sell this product but we are not planning to go large volume from the launch of -- from the beginning of the speaker launch. So we do not expect any significant additional cost. (foreign language) So in terms of the revenue sharing arrangements, the contractual arrangements, since there has not yet been any revenue that's generated, we do not yet have any criteria at this point. But once that time comes we are certain that we can come up with an appropriate way to share between the 2 entities.

(foreign language) Thank you, that brings us to the end of the Q1 earnings call. Thank you for joining us.