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Edited Transcript of 035420.KS earnings conference call or presentation 31-Oct-19 12:00am GMT

Q3 2019 Naver Corp Earnings Call

Gyeonggi-do Nov 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Naver Corp earnings conference call or presentation Thursday, October 31, 2019 at 12:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Sang-Jin Park

NAVER Corporation - CFO

* Seon Cho Ki

NAVER Corporation - Head of IR

* Seong-Sook Han

NAVER Corporation - President, CEO & Director

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Conference Call Participants

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* Moonjong Lee

Shinhan Investment Corp., Research Division - Economist and Analyst

* Seungjoo Ro

CLSA Limited, Research Division - Research Analyst

* Seyon Park

Morgan Stanley, Research Division - Equity Analyst

* Soyun Shin

Crédit Suisse AG, Research Division - Research Analyst

* Stanley Yang

JP Morgan Chase & Co, Research Division - Analyst

* Sung Eun Kim

Macquarie Research - 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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[Interpreted] Good morning, and good evening. Now we will begin the conference of the fiscal year 2019 third 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 third quarter earnings followed by a Q&A session.

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Seon Cho Ki, NAVER Corporation - Head of IR [2]

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[Interpreted] Good morning. I am Kim Min, Director of IR. Thank you for joining NAVER's Q3 2019 earnings presentation. With us today are our CEO, Han Seong-Sook; CFO, Park Sang-Jin; and COO, Choi In-Hyuk. The earnings results are K IFRS-based provided for the purpose of timely communications and are yet to be audited by an independent auditor and hence are subject to change after the results.

With that, our CEO, Han will now present on the business highlights.

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Seong-Sook Han, NAVER Corporation - President, CEO & Director [3]

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[Interpreted] Good morning. I am Han Seong-Sook, thank you for joining us today. This October, we had many gatherings like the Connect and DEVIEW where we shared topics around company services, business and technology. As presented at the DEVIEW event, NAVER's R&D is focused on bringing its technology and services that users will experience into the future realm, which is to be created from the convergence of technologies, i.e., AI, robotics, autonomous driving and cloud.

A part of this initiative includes Around which is an indoor autonomous robotics platform, which we took to apply 5G-based brainless technology, first-ever showcased at this year's CES, enabling a cost-efficient way to control service robots on cloud with no latency.

Going forward, in line with the infrastructure build-out, we plan to broaden the application so that users can experience NAVER's technology and services in various touch points of our daily lives.

NAVER will continue to create new value for our users and businesses, supported by advanced technological capabilities such as an AIN robot to lead the creation of a new technological paradigm. To this end, we also announced global AI research belt, which is AI technology network that connects Asia and Europe. In the short run, we can encourage technology advancements through cross-border exchanges. And mid- to long-term, we can foster AI technical professionals to expand competent global talent network.

AI is NAVER's investment for the future and if used across the board on ad optimization, product content recommendations and business and creative support and is creating actual results and underpins our service competitiveness.

We see pronounced outcome from NAVER Shopping visited by more than 60 million people every week. AiTEMS which uses database of 0.8 billion products registered by 300,000 sellers recommends products based on the user's gender, age, real-time clicks and purchase cycle and patterns. And so it's being broadly applied across the entire shopping flow. With recommendations that befits the user's context and intentions, in 2 years since the launch, AiTEMS' usage rate increased to 80%, with volume growing twofold year-over-year, accounting for more than 10% of the shopping GMV. Also 80% of the total shopping mall is exposed via the AiTEMS. And number of product clicks also increased 65%, bringing real benefits to the sellers. We will refine product recommendation logic in order to satisfy all users and expand AiTEMS to offer personalized shopping experience.

Driven by growth in shopping, Q3 Pay GMV was up 45% year-over-year, surpassing KRW 4 trillion. Based on the online growth, we are seeking to expand into the off-line space. And the official launch of Table Order back in September was well received by businesses, and we are fast expanding the service in collaboration with major push providers.

Since Table Order enables users to order conveniently and businesses to efficiently receive those orders, we expect the service to penetrate broadly. And against 2.9 million small businesses registered at Place, we will gradually expand sector-specific solutions. This will expand the payment volume and generate high-quality reviews based on actual user experience, which will help to enhance the quality of our search services.

As of tomorrow, November 1, Pay CIC will spin off as NAVER Financial in order to embark on its journey as a financial platform. After the spinoff, we will continue to solidify the foundation for financial business through expanding the payment volume. And in collaboration with Mirae Asset, we'll kick start the development of competitive financial products, which will lead to the creation of this new market.

NAVER Financial will re-live the success we've already experienced in Shopping and Place and, by improving the intermediating processes for financial products, will evolve into an innovative financial platform where users will enjoy many benefits in a convenient and secure manner in which they will get product recommendations and make purchases and where financial institutions can sell products more efficiently.

Together with the growth of core domestic businesses, global expansion and monetization of content business is well underway.

NAVER has seen growth and MAU was up [37%] year-over-year reaching above 9 million with global MAU reporting 60 million users. GMV was up almost twofold year-over-year as we gear up for securing profitability.

In the domestic market, where we have loyal user base, we see growth in the number of paying users underpinned by high quality contents that are well made and which cater to popularity.

And with the more sophisticated recommendations for pay-for-fee content like the web novels and completed series, payment value per user is increasing, leading the overall content GMV growth. For the global market, after adopting a revenue model end of last year, North America GMV was up around 70% Q-on-Q, increasing its share. And also thanks to the brand's marketing in Q3, potential user base has grown, and we are seeking to apply various revenue models already proven in Korea, and so we expect global revenue will continue to grow in the future.

Secondary content development and distribution are also showing good results. In Q3, more popular NAVER Webtoon channels including Story of NokDu, Hell Is Other, [Telemamart] were aired as TV dramas all ranking #1 program viewed in that specific time slot. These outcomes helped us validate the potential of our Webtoon IP business.

Also in the U.S., we entered into a partnership with Warner Media subsidiary, Crunchyroll to produce and globally distribute Webtoon IP-based animations. Crunchyroll is a streaming provider that produce and distribute popular animes like Dragon Ball and Naruto in the U.S. and has 50 million user base and 2 million paying subscribers. We expect this will be an opportunity for creators to increase their revenue and also help to grow interest on Webtoon content globally. Going forward, we will try different revenue models that can drive content distribution and acceptance and apply them globally to bring profitable growth.

In the B2B business, which we are fostering as next-generation growth engine, together with content, Cloud is growing according to plan with Q3 revenue increasing more than twofold year-over-year. We completed the set up of financial cloud zone early September and held an opening event last week at Yeouido, kickstarting our initiative to target the financial market.

Financial cloud zone is an outcome of collaboration with COSCOM, which is a financial IT provider. And its design is fully compliant with domestic regulations for financial institutions, such as network separation requirement, and will be a key competitive edge for NAVER as it undertakes financial cloud business in the future.

Our achievements are not just domestic but global as well. We are codeveloping technology and products with Intel and enhanced intercloud compatibility with Yandex, and we continue to build strategic collaborative cases with global IT companies. Also, we competed with global cloud providers and won Deskera as a client, which is South East Asia's #1 SaaS company and have also provided cloud services to World Customs Organization, an international organization based in Belgium. As such, we've newly onboarded well regarded global client. This is an achievement only NAVER Cloud can achieve as the only domestic company that can offer global services. And we expect to gain more customers both domestic and global as we go forward.

NAVER Cloud not only offers useful services like the Maps and Translate, it also provides differentiated value through exclusive sales of our B2B products that embody our AI technology.

For search and Clova, we also entered an MOU with Shinhan bank, following Woori and KB bank, now providing top 3 commercial banks with our AI solutions, thereby, offering products that make financial workflow more efficient such as through the use of OCR-based document recognition, non-face-to-face authentication and 24/7 customer service in combination with the cloud services.

Already from October, we are offering education services that use voice recognition, voice conversion and chat bot technologies through a NAVER Cloud platform to [Engine Think Big], creating synergies across internal B2B businesses.

Going forward, we plan to bring together internally built-up technology and business capabilities in order to pioneer into B2B markets in various verticals such as in finance, education, health care and others.

We at NAVER will continue to strengthen our growth drivers in fintech, content and B2B and foster balanced growth around search and commerce, our core businesses. We will continue to evolve into becoming a community that doesn't cease to take global challenges. I ask for your continued support and interest, and now I turn it over to our CFO, Park for the earnings results.

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Sang-Jin Park, NAVER Corporation - CFO [4]

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[Interpreted] Good morning. This is Park Sang-Jin, the CFO. Q3 consolidated operating revenue was up 19.1% year over -- year-on-year and 2.1% Q-on-Q to KRW 1.6648 trillion. Consolidated operating profit was down 8.9% year-on-year, and up 57.5% Q-on-Q to KRW 202.1 billion, with OP margin at 12.1%.

Looking at the breakdown between NAVER's core business and LINE and others, core business reported KRW 302.4 billion in operating profit, while LINE and other business reported operating loss of KRW 100.3 billion lowest this year.

Q3 net profit was up 24.7% year-on-year and 207.2% Q-on-Q, reporting KRW 85.3 billion, with net profit margin of 5.1%.

Breakdown of Q3 consolidated operating revenue comprises of Ads at 9%; Business Platform 43%; IT Platform, 7%; Content Service, 3%; LINE and Other Platforms, 38%. Breakdown of consolidated operating expense comprises Platform Development and Operation at 16%; Agency and Partner Commission, 21%; Infrastructure, 6%; Marketing, 8%; LINE and Other Platforms, 49%.

By operating revenue breakdown, Ads was up 12.2% year-over-year on mobile ad inventory increase and product enhancements, but was down 8.3% Q-on-Q, reporting KRW 152.7 billion.

On continued solid commerce growth in Q3 and refinement in search using AI, Business Platform was up 17.3% year-on-year and 0.5% Q-on-Q to KRW 719.3 billion.

Driven by GMV growth from NAVER Pay, IT Platform was up 27.2% year-over-year and 9.9% Q-on-Q to KRW 116.3 billion.

On steep Webtoon growth, content service was up 64.1% year-on-year and 8.7% Q-on-Q to KRW 54.5 billion.

On display ads revenue growth which also includes smart channel, LINE and Other Platforms was up 18.7% year-on-year and 5.1% Q-on-Q to KRW 622.2 billion.

So next is on the expense. Platform development and operating expense was up 16.8% year-on-year, but with the one-off impact from last quarter gone, there was a decline of 2.5% Q-on-Q with the figure coming in at KRW 228.7 billion.

On increase in revenue-linked commissions, agency and partner expense was up 19.6% year-over-year and 2.2% Q-on-Q to KRW 304.6 billion.

Infrastructure expense due to last year's server and equipment purchases increased 31.8% year-on-year and 5.7% Q-on-Q to KRW 85 billion.

Marketing expense was up 47.4% year-on-year and 18.7% Q-on-Q to KRW 122.1 billion, owing to increases in NAVER Pay point and global marketing of Webtoon.

LINE and Other Platform expense was up 24.9% year-on-year. But on lower one-off expense following the end of LINE Pay's money transfer campaigns was down 8.1% Q-on-Q to KRW 722.3 billion. That brings us to the end of Q3 financial results. We will now entertain your questions.

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Questions and Answers

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Operator [1]

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[Interpreted] (Operator Instructions) The first question will be provided by Sung Eun Kim from Macquarie Securities.

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Sung Eun Kim, Macquarie Research - Analyst [2]

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[Interpreted] My first question relates to NAVER Financial. Tomorrow, you will be announcing an official spinoff of NAVER Financial. So could you provide some explanation as to what the strategy for this company will be going forward? And also share with us the road map for financial service -- for financial expansion into the financial businesses?

Second, I would think that your content revenue performance was good, driven by the Webtoon growth. Can you share more details with respect to the growth in Webtoon that you have seen in Q3? And also in the fourth quarter as well, would you be as aggressive in implementing Webtoon marketing on a global basis?

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Unidentified Company Representative, [3]

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[Interpreted] Yes. I will respond to your question about our strategy regarding NAVER Financial and then talk about our financial services that we are currently planning. Basically, we will grow underpinned by the payment service which is based off of our current commerce platform. We want to further increase the utility rate of the people who make the payment. We're also trying to increase the number of places where on and offline payment is going to be accepted. So we would -- based -- so based on the increase in the number of people who register their account, we expect to further grow the size of NAVER Pay and the P2P transfer market as well.

Especially in terms of the off-line payment. In September, we officially launched Table Order which was very well received by the businesses, and we are closely collaborating, incorporating with post-POS, point of service providers, in expanding these services. Basically, Table Order allows users to very conveniently submit their orders and the businesses to accept and respond to those orders in a very efficient manner. Therefore, we expect this service is going to penetrate quite widely going forward.

And just as we were able to provide a very seamless user experience for Pay based off of our shopping platform, we want to take a similar approach and attract our users to the financial product. NAVER commerce platform very naturally connects the sellers with the buyers, and we wish to attract them by introducing easy-to-use financial products through which we can actually build up the awareness level and increase people's experience levels as well. We will also develop bespoke financial products by making use of the available data. Through these efforts, we want to further expand our financial product portfolio.

In terms of a more specific financial services, we are planning about 2 to 3 years out some time. We will first next year launch NAVER bankbook, which will be a very good starting point for us to expand into the financial business. This will allow users to just very easily and simply experience different types of financial products like the equities product or the insurance product with just a very small amount of money. This plan is currently being reviewed at this point.

Now -- and also based off of the payment element, which is underpinned by our NAVER Shopping, we are also thinking of providing a service where the payment is made on an x-post basis.

And also at the same time, we want to utilize the CapEx that we are getting, a topic that will really entail a high level of financial engagement, the topic that comes through NAVER search, Pay, securities and real estate, so we want to very quickly expand the base of financial users underpinned by such [audience] level and the level of experience. And from the second half of next year, we're also thinking of introducing deposit services and recommendation services and credit card services where we could actually make fee income.

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Unidentified Company Representative, [4]

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[Interpreted] You also asked about our content and Webtoon revenue growth. Our global content revenue growth was actually underpinned by a significant and very clear growth from Webtoon. Although, it's difficult for me to share with you the specific numbers, on a year-over-year basis, in terms of both GMV and the revenue figure, the Webtoon growth was over 100%. And even on Q-on-Q basis, Webtoon growth posted above 20%. So although a bit cautious, we believe that there will be a very pronounced growth in Q4 as well.

And one of the key drivers behind this growth came from the North American market. We mentioned that the GMV had grown by more than 7%. And if you look at the number of users in North America, it actually grew by 60% or so. And this is thanks to the marketing efforts that is really focused. Especially in North America, the third quarter is the start of a new school season. So we focused our marketing spend at this very timing. So with regards to your question, whether we will continue to spend as much in Q4? We do not think that the level of marketing spend will be as high in Q4 as you've seen in Q3.

On top of the good performance from the global or the overseas side, we also continue to see increases in the number of loyal user base in Korea as well as domestic market. And also the amount of payment volume on a year-over-year basis is also above 2 digits. And we think that, hence, the trend for Webtoon and content revenue will be robust into the future.

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Operator [5]

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[Interpreted] The following question will be presented by Moonjong Lee from Shinhan Investment.

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Moonjong Lee, Shinhan Investment Corp., Research Division - Economist and Analyst [6]

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[Interpreted] I also have a question on the Webtoon topic. You mentioned that your MAU in U.S. is around 7 million. For this year or for next year, do you have a specific target that you're shooting for? And also in North America, it's not been long since you started your monetization process. Compared to the level of domestic, what is the percentage of monetization that's been implemented in North America? And how long will it take to come to the level or reach the level of what you have in domestic market? And if you start your monetization in the European market, once again, how long will it take for it to reach the level of the North American market?

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Unidentified Company Representative, [7]

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[Interpreted] So if you look at the U.S., the MAU figure at this point is 9 million. Beginning of the year, our target was for this year 9 million, around 10 million. We have about 2 months left. So we would have to continue to see what the MAU trend will be like until the end of the year. But if you were to compare the figure with the domestic MAU, it's still less than about 40%. So there is a gap. But if you look at the other indicators which represent a higher level of activity rate, like WAU and DAU, the gap is much wider. So once again the monetization level for domestic is higher at this point.

And so if you look at the payment GMV as opposed to the WAU and DAU, there is going to be a wider gap. I believe that as we expand our business and as we refine our business, this gap will narrow. So it's difficult to tell you how many years it would take for this figure to actually come -- to become -- to come to the level of what we have in domestic. It's hard to give you a specific number. But what's quite clear is that there is an upward trend. For the U.S. market, it took us about 2 to 3 years for us to reach 9 million MAU. When we launch in Europe, and if we provide our services well, it will more or less take about the same length of period or it could be a little more. It's hard to tell.

So in terms of domestic monetization, we continue to grow our monetization within the domestic market, not just based off of paying for the content, based off of our existing user base. But we're also quite actively expanding the use of our IP business, so we're diversifying the revenue source. In terms of the BEP, the global Webtoon is not yet at the BEP level, but for the domestic, we have surpassed the BEP level.

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Operator [8]

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[Interpreted] The next will be presented by Stanley Yang from JPMorgan.

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Stanley Yang, JP Morgan Chase & Co, Research Division - Analyst [9]

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[Interpreted] My first question relates to a potential for participating in the rights offering of your fintech subsidiary businesses. I know that you have not participated in what LINE Pay had done. But if you look at the spinoff of NAVER Financials, going forward there may be need for NAVER to actually participate in the rights offering contest. So do you feel that there's a pressure for you to -- that type of pressure point may emerge? Or do think that, that will not happen? NAVER will not participate in any of the equities or rights offerings going forward?

Second question is, you currently have 76% shareholding at LINE. A lot of shareholders and investors have questioned as to your plans to either -- your utilization plan for this holding that you have and what positive impact this may have on the value of NAVER? I think this is an aspect that you would need to probably think of as well. Would like to understand what your strategic thoughts are on this value point? And you mentioned in the past that you would -- you have a new approach when it comes to shareholder return policy. Can you provide some more color on that? What those new thinkings would look like? And also would that be based off of a standalone earnings?

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Unidentified Company Representative, [10]

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[Interpreted] Your question relating to our rights offering participation in our fintech subsidiaries, I think you're asking that question off of yesterday's disclosure that LINE Pay is planning to do its rights offering. Think -- what we can say is that the business model and the growth model that we have seen from LINE Pay in Japan and Taiwan is quite different from what we have in line for NAVER Financials. It would -- I mean in LINE Pay, it required certain levels of marketing expense. But that type of marketing expense or requirement will not really exist in NAVER Pay. But of course, there would be costs that would be required to actually build up the provision for the NAVER Pay points, the mileage points.

Having said that, tomorrow after it's spun off, we actually have a strategic investor who will participate as in terms of investment. So from a short-term perspective, we do not think that NAVER Financial will be faced with a situation where there will be a need for additional rights offering.

In terms of the 73% booking that we have at LINE and what impact that would have on NAVER. LINE is a consolidated company whose figures have affected on our statement. So if their revenue grows, profit is good, that has positive impact. If their top line is stagnant, it goes to loss, of course that has negative impact. But our relationship with LINE is not just something that we should assess from a truly financial perspective because LINE has significant position in countries like Japan, Taiwan and Southeast Asia, which will help NAVER greatly in NAVER's future pursuit of global expansion. We could make use of the network and the market positioning that the company has already built -- that LINE has already built in those markets. So we consider LINE as our strategic partner in global business. And hence, it does have value in terms of the whole growth perspective.

But with respect to whether we will hold on to this same level of shareholding or whether we will actually increase or decrease our position, we're open to -- we are open to different options. But we are -- we have a long-term perspective, and we would think of eventually ways that will eventually help with enhancing NAVER's corporate value.

In terms of our payout policy, as mentioned previous quarter, up until the end of this year at our BOD, we will very actively discuss as to different methods. And I expect that we would be able to communicate with you more concrete information of the new payout policy in the coming January earnings conference.

At this point, with regards to what the basis of the disbursements, the size and the methods will be is something that is being considered. But it will be in a way that it's predictable and more visible for the market and the investors. But whether it will be based on off of a standalone performance or consolidated figures, those points have yet to be decided. We are reviewing different approaches. And once that gets decided, we'll be able to come back.

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Operator [11]

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[Interpreted] The following question will be presented by Seyon Park from Morgan Stanley.

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Seyon Park, Morgan Stanley, Research Division - Equity Analyst [12]

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[Interpreted] My question relates to your advertisement revenue. If you look at your Business Platform revenue, can you give us a breakdown between e-commerce and keyword search ad? And also can you provide some color as to the growth rate of individual segments? Also, if you look at the banner ads, I understand that from September, you increased the cost or the price, and I understand that you have a 30%. But due to reasons such as bonus, the actual increase, incremental may actually be different from that 30%. So can you give some explanations to that? And I would think that the impact of that increase is going to start to come through in Q4, if so, which are the numbers that we need to look out for? And another question is that Kakao has launched their product called Talk Board, would like to understand what impact this has on NAVER's SA ad, if any?

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Unidentified Company Representative, [13]

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[Interpreted] So you asked about Business Platform and the breakdown between e-commerce and keyword search. Basically, the way we capture our Business Platform revenue is based off of search. So e-commerce is also search and search ad is also search. So we do not have the specific breakdown where we manage internally. What I can say is that there is robust growth. Q3, we saw good figures come in. Our Business Platform revenue was quite positive. And this was driven by multiple factors. Our CPS revenue was up, shopping SA, search ad, was also up and the Power Link for the PC it has also been quite robust, so both on the mobile and PC side. So we are looking at an overall very comprehensive positive growth across all of these elements.

So in terms of the banner ads. Our decision to actually increase the cost is actually in light of the good data -- customer satisfaction or the advertising satisfaction we have established as giving them good performance. And so our advertising bills has been -- our revenues has been quite robust. And the special DA, the display ad, basically we think the impact from that is going to be positive and we'll start to see that in Q4.

In relation to your second question about KakaoTalk - Boards and their growth, it does not have an impact on NAVER's ads. Currently, we are not seeing any signs of any impact, or significant impact that it's having on our NAVER advertisement. We are not seeing any of the advertisers who have been using us actually leave our platform. But going forward, as Kakao this board product really takes root in the market. In order to respond to that, we will also continue to develop our mobile products, continue to enhance them and also develop new products and make sure that we can generate synergies between our DA and SA products. So we will from NAVER's perspective equip ourselves with product capability to potentially counter any impact.

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Operator [14]

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[Interpreted] The following question will be presented by Taewon Kim with UBS securities.

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Taewon Kim, UBS Investment Bank, Research Division - Director and Research Analyst of Internet and Gaming [15]

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[Interpreted] You've recently communicated that your OP margin guidance for NAVER's core businesses is above 30%. With the sound revenue growth, there was also expenses and investment into your new business, and actually the customer expenses was around the actual OP margin was 29%. So your new business meaning Webtoon and Financials. So going forward Q4 into next year, do you plan to adjust your guidance? And second question is with NAVER Financial and the strategic partner, the shareholding of that strategic partner, would you be able to disclose what that shareholding ratio is right after the spinoff? Can you tell us of the timing of that disclosure?

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Unidentified Company Representative, [16]

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[Interpreted] In terms of OP margin for Q3, yes, it was 29%. Once again because of the global marketing investment and expense on Webtoon, that was one of the reasons behind that. And also year-over-year, yes, there was a revenue growth. But if you look at NAVER's core businesses on a Q-on-Q basis, the areas that take up a big share of our revenue which is ad and Business Platform, their growth was not that significant once again on a Q-on-Q basis. Hence we underperformed that 30%.

For Q4, although, we are cautious, we believe, however still, that we will not have too much problem maintaining above 30% per annum annual OP margin.

Having said that, as our new business revenue and volume growth from fintech and Webtoon and V LIVE and others, there may be need for us to make some adjustments. But as of now, we do not see the need to actually adjust or recommunicate our guidance. Once our business plan becomes much more materialized, I think and if need be, we will come back to you and communicate with you, if there are any adjustments that we need to make on our guidance.

Well, in terms of the shareholding rate. Currently, we are under discussions with a strategic investor. Although, the company is going to be spun off tomorrow, the BOD is not going to convene immediately to make decision on the capital increase. So once that discussion ends and once decision is reached on the shareholding rate, meaning once the BOD actually makes a decision on the resolution, we will be able make the disclosure.

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Operator [17]

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[Interpreted] The following question will be presented by Shin Soyun from Crédit Suisse.

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Soyun Shin, Crédit Suisse AG, Research Division - Research Analyst [18]

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[Interpreted] So I have a quick question on your guidance. Your Q3 Business Platform revenue growth was quite strong. Do you expect the same for Q4? Second, during the Connect day, you've mentioned that your AI and commerce GMV share is growing. Do you expect that growth to be maintained next year as well?

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Unidentified Company Representative, [19]

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[Interpreted] Yes, the Business Platform revenue for Q3 was quite robust. And for Q4, we are targeting a double-digit growth as well. So we expect that growth to continue. And with respect to next year's plan and what we project, we will be able to communicate those information during the Q4 earnings conference, once we finalize on our business plan at the end of this year.

In terms of our shopping GMV, driven by the small store growth, in 2019, we project that we'll be able to grow above 20%. And going forward, we'll continue to make sure that we sustain that growth underpinned by improving of the search quality, strengthening of our royalty base as well as the data comp.

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Operator [20]

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[Interpreted] The following question will be presented by Seungjoo Ro from CLSA.

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Seungjoo Ro, CLSA Limited, Research Division - Research Analyst [21]

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[Interpreted] I would like to ask a question. Your subsidiaries performance, your business -- their businesses are improving. My question relates to SNOW. You continue to inject capital into your subsidiary, SNOW. Could you explain the background to this? I would like to understand what potential you see in this SNOW business? And also what is your strategy next year to actually reduce the amount of losses that are being incurred?

Second question. Can you share with us some of the user-related indicators and also ad-related metrics for video services?

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Unidentified Company Representative, [22]

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[Interpreted] On topic of Webtoon -- or first from SNOW, we are seeing performance increases. The revenue in Q3, although I can't specify the figure, had actually gone up by about 50% year-over-year. But still this is not enough for us to cover the entire expense and hence there is loss that is being incurred from this business. SNOW as you know started off with a camera application and it was really taken very positively by a lot of users, not just in Korea, but from China as well as Asian countries and it really worked as a good basis for us to go and expand into the global market. Stage II of SNOW is moving away from or evolving from that camera growing into the 3D [auto policy] and building of the community via the ZEPETO element. So we will be bringing AI vision technology and bringing that and conversions with these types of technologies under SNOW to really build and provide a community-based services.

So in terms of the potential. Once again, I will be providing these ZEPETO services. And there are multiple very creative attempts by SNOW like [K Present], Line and Amuse. So SNOW organization really has its capabilities around the studio feature as well as it is filled with spirit of challenge. So it is continuously recording a loss. But what we are focused on is really stabilizing the certain parts of this business and trying new types of business models and revenue models.

At this point, we are generating ad-related revenue from an application of a business model. So in businesses -- in areas of the business where we have seen more steady business, we are putting in our monetization efforts as we continue to challenge with new creative ideas in order to reduce the extent of the loss.

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Seong-Sook Han, NAVER Corporation - President, CEO & Director [23]

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[Interpreted] On the video side. Yes, we are seeing increases in the number of plays for NAVER TV and other types of like YouTube videos. But we think that within NAVER, we want to provide an enhanced experience when it comes to video and enhance our competitiveness status. For instance like for the influencer search, we are currently thinking very hard as to how we could bring that to bear on the beauty and the travel, different types of verticals. So -- and also making sure that videos are used appropriately as an outcome to NAVER search. So with regards to how that is going to take place, the content, the method and the viewers, we've made improvements over the year. And next year, we will be focused more on different verticals like food, golf and beauty and really showing and exposing the how to videos and so that the way people actually consume videos and the experience can be further enhanced.

So through the influencer search, it will be the creators themselves that actually provide these information directly to the people who are searching for certain keywords in the format of a video. And we expect that the overall flow is going to improve as we go forward.

We also have built a new platform called Selective. And under Selective, basically different shopping-related explanations and information as well as the reviews of those products will be uploaded via a video format. For Place as well the review of -- after visiting a certain restaurant can actually be uploaded via the video. So these are some of the things that we are currently working on, really trying to enhance the user experience around the review portion as well. So from next year, we would be -- you would be able to see these types of efforts really be I guess realized in our platforms.

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Unidentified Company Representative, [24]

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[Interpreted] In terms of the video and its relationship with our advertisement business, as you know the industry trend is that TV ad budget is now moving to online. A lot of those budgets have been used for YouTube platform. And also NAVER is trying to -- is attracting that budget. And in order to do that we will also be making sure that our services are good so that we can actually attract those budgets.

And we will optimize our video ad products so that we can actually provide satisfaction to the users. So with regards to the video services, it could be a video ad that is attached or it could be a banner ad depending on what is most optimal. So we're testing various different methods. And the video ad growth that we are seeing is actually quite high compared to the video platform itself or the ads platform itself on a standalone basis.

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Seon Cho Ki, NAVER Corporation - Head of IR [25]

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[Interpreted] At this time, we don't have any further questions that have been submitted. We would like to thank you for attending Q3 2019 earnings presentation. Thank you very much for joining us.

[Portions of this transcript that are marked Interpreted were spoken by an interpreter present on the live call.]