NAVER Corporation (A035420) Earnings Call Transcript & Summary

Good morning, and good evening. Now we will begin the conference of the Fiscal Year 2021 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 a Q&A session.

Good morning. I am Kim Min, Director of IR. Thank you for joining NAVER's First Quarter 2021 Earnings Presentation. Today, we have CEO, Han Seong-Sook; COO, Choi In-Hyuk; and CFO, Park Sang-Jin with us. 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, subject to change after the review. Let me invite our CEO, Han, to present on the business highlights.

Good morning. I'm Han Seong-Sook, NAVER's CEO. Thank you for joining our earnings release presentation. This quarter, there were meaningful investments in corporations that drove NAVER's growth a step further with greater speed and scale. Following acquisition of Wattpad, which was announced last quarter in collaborations with Hive, we announced digital innovation collaborations with Korean Air last February. And on March 17, we had a treasury share swap of KRW 250 billion with Shinsegae and e-mart in order to offer users and vendors shopping experience and sales infrastructure that cut across on and off-line. The 2 companies will bring their respective capabilities into fresh food category first, where digital transition is taking place most actively and expand logistics infrastructure to deliver innovation to users. We plan to evolve into a commerce platform, which completes the loop, spanning membership, reward points, providing sales channel, effective sales channel to SMEs and branded companies. We are also actively linked -- we also actively linked up our technology and business know-how with global businesses. With the completion of business integration process in March 1, we plan to target global commerce market with the launch of Smart Store in Japan. Our global [ expansion also includes strategic investments into Spain's biggest resale platform, [indiscernible] and M.Tech, which is Indonesia's largest media group as we ] make inroads into various business opportunities on the global stage. In Search platform, which is our core business, we bolstered AI technology by bringing in a supercomputer, and we also saw how the efforts around influencer search, revamping of the main page, et cetera, led to good results. To support the growth of creators and open up new business opportunities, we added tap search for influencers and expanded the keyword challenge, which drove influencer search coverage 15% in Q1, with content usage continuing a steady uptrend. Also for NAVER blog, last year, a number of new blogs was up twofold year-on-year, of which 30-plus percent was people in their 20s as it is seen as a trending media to record once-daily live. So we want to grow the basis as a creator tool for the new generation. On April, a number of Smart Stores was up 40% to 450,000 with average monthly new vendor inflow surpassing 33,000. Q1 Smart Store GMV was up 53% [ off year ] and brand store, which is specialized, marketing avenue for brands and Shopping LIVE! is also showing a steep growth. Currently, our brand store, which has 320 branded vendors is growing well with no churn out, and the brand stores also provide a total marketing promotion channel utilizing both NAVER as a Shopping LIVE! and use many other service features like blogs, TalkTalk, e-mail services to acquire members and frequent visitors and do CRM. On the NAVER platform, companies employ the freedom as if it is their native mall and use many tools, as such, positive collaboration model with the branded companies are now being set up on NAVER Commerce. For Q1, cumulative views for Shopping LIVE! was 179 million, and cumulative number of buyers was 1.7 million, with more than a threefold growth versus 6 months ago in terms of GMV as this service gains upper hand in the market. Number of live shows that grossed in more than KRW 100 million, and number of sellers running a live session more than once a week, have all increased by more than twofold Q-on-Q. While out of the total live GMV, SME mix continues to rise, and we expect Shopping LIVE! to become most effective sales and marketing tool for new product launches. Shopping LIVE! is a combination of neighbors' expansive traffic and commerce, UGC, content asset and live technology, and we plan to try new things like adopting it to influencers and plus memberships so as to create a new online marketing paradigm. As each one of these services are growing in scale and becoming its own business domain, tools that we offer must also be upgraded to better support vendors growth. To that end, we are focusing on developing global stores and merchant solutions. Currently, we offer basic tools like for store setup, product management, order and payment and will expand the tools to include customer management, settlement and financing, data analytics, logistics and marketing solutions. Also by linking up with our expert services, we will provide expert advice, which the sellers require, like in the domain of tasks, labor relations and tariffs and will also connect with NAVER Cloud business so that we may not overlook any gap. We were primarily focused on supporting the growth of vendors for the time being, then review monetization potential for solutions that have high business utility and take that revenue to reinvest into making the tools more sophisticated and expand the scope so as to grow together with the SMEs and branded companies. Q1 NAVER Pay GMV was up 56% on year, reporting KRW 8.4 trillion. It is meaningful to see that key GMV growth driver is outside partners newly joining the NAVER Pay ecosystem in the Smart Store. In Q1, we onboarded large merchants like Nexon and Samsung Fire & Marine Insurance, bringing number of online partner malls, up 31% on year to 65,000. We will also continue high-growth through new corporations and payments with large MOU partners like Shinsegae , e-mart and Korean Air. NAVER Pay will grow in pace with NAVER Shopping to expand the commerce ecosystem and will continue to further build on the fintech ecosystem and bolster point-based payment on platform. To that end, we provide world's fastest payment cycle fULL payment day after delivery completion. And the scope of Smart Store vendors eligible for loan takeout has increased by more than 50% year-to-date. In April, we began beta test for buy now pay later services, further completing our fintech service portfolio across the entire payment chain to support thin filers in the blind spot underserved by the financial market. NAVER Webtoon and Wattpad together offer biggest global platform for digital content with MAU of 160 million. The crux of this synergy lies in technology and diversity. We announced Wattpad acquisition back in Q1 and target completion in May and have begun building business models in conjunction with Webtoon to bring synergies post integration. Wattpad is North America's biggest storytelling platform, having more than 5 million creators, 6x stead of Webtoon, with more than 1 billion content postings. On the back of rich content offerings, monthly users for Q1 was up 4 million versus last quarter, reporting 94 million users. We will bring NAVER Webtoon's AI technology to do analytics and recommendations on Wattpad's expansive titles to further up the value of the content and through creative development programs, we will support amateur content to evolve into professional ones so as to generate greater revenue and subscribers eventually leading to big synergies. Furthermore, by offering AI-based tools, we want to lower the barrier to content creation for storytelling, which would trigger diversity and find super IPs to facilitate creation of derivative works. Once the acquisition is complete in May, exchange of user traffic will start to happen, and we will drive up the impact by launching original content in the form of Webtoon and Web Novel at the same time on each of the platform. In the second half of the year, aside from making popular content into Webtoon and Web Novel, we will create synergies by expanding into secondary derivative works, including the 90 filming project currently ongoing in Wattpad. Long term, we will embed highly sophisticated and proven revenue model to Wattpad and create world's biggest global creative ecosystem, which will enable growth of both creators and platforms, underpinned by a reasonable revenue sharing model. In Q1, NAVER Cloud platform executed meaningful contracts, bringing cloud revenue up 168% on year, sustaining a very high growth. Number of B2B customers was up by twofold on year, reporting 27,000, and especially public sector revenue increased by more than tenfold on year, which is driving volume growth of NAVER Cloud. In the health care sector, NAVER Cloud is at the lead of the market. We supported Korean University Hospital's cloud migration of its precision medicine hospital information system, providing cloud system to a hospital with more than 1,000 beds for the first time in the world. This definitely was a case of innovation, taking major medical information system and key business systems completely to cloud, and we expect there to be similar demand to grow in the future. We also started to acquire customers of NAVER Cloud by offering health care solutions to primary and secondary health care institutions not only tertiary. We will continue to help hospitals and clinics to adopt leading technologies in line with their specialized means. Lastly, there was groundbreaking of [indiscernible], which is Asia's biggest data center, which will be at the core of our B2B business. NAVER is already ahead of other competitors in terms of scale of infrastructure and quality-driven service enhancements and having a super computing environment, whereby advanced B2B solutions can be implemented. Through preemptive technology and infrastructure investments, we will drive higher service level befitting the needs of public, financial and health care center, who are at the fore -- front line of Korea's cloud market. And by expanding solution offerings optimized for each of these verticals, we will lead in Korea's B2B market. Last but not least, things are going as planned in terms of our efforts to be at the lead of ESG management. In February, we set up a dedicated team to achieve 2040 carbon-negative target. We are laying down road map for transition to renewable energies in phases based on carbon emissions scenario. We are also seeking to expand partnerships to secure low-carbon energy sourcing and environmentally friendly solutions. Also, in order to live by the ethical business management principles, we set up a dedicated team under the CEO and made a handbook on voluntary fair trade compliance, thereby making a more stringent supervision on breach of corporate ethics and unfair behaviors. And to meet the global standard, we applied for an ISO certification. We were the first domestic Internet company to issue $500 million of sustainable bond. Funds raised will be used to build and operate eco-friendly data centers, renewable energies and used to support those who are socially vulnerable and many other social and environmental projects. We will actively communicate our ESG efforts to investors in a transparent manner and become a top-tier ESG company. As mentioned at the beginning, we are at an important tipping point for NAVER to speed up growth in the global market and further enhance our corporate value. To give momentum to these efforts and the spirit of challenge of our employees and to recruit and retain good talent, we adopted a new stock-based compensation program called the Stock Grant Program. We plan to bolster our compensation system to notch up the talent of our resources. We ask our members, partners and investors for your support and encouragement for NAVER's global challenge. And now I will turn it over to the CFO, Park Sang-Jin, for financial highlights.

Good morning. I'm CFO, Park Sang-Jin. NAVER'S Q1 consolidated operating revenue was up 29.8% on year and down 0.9% on quarter to KRW 1,499.1 billion. Consolidated operating profit was down 1% on year and 10.8% on quarter, reporting KRW 288.8 billion. Q1 operating profit was down Q-on-Q on higher stock-based compensation, while adjusted EBITDA, which shows company's cash-generating capacity, was up 23.7% on year and 5.1% on quarter, reporting a record of KRW 440.6 billion. Also, last March, we completed business integration of Line and Z Holdings with sizable noncash accounting gains from Line and its subsidiaries, Q1 net profit was KRW 15,314.5 billion. Equity method gains that AA Holding books for Z Holdings is reflected starting this quarter, and we expect there to be a positive impact on net profit going forward. Breakdown of Q1 operating revenue is as follows: on new advertisers and expanded services and upgraded platforms, service platform revenue was up 16.8% on year and down 2.3% on quarter to KRW 752.7 billion. Performance ad growth continued with display ad revenue increasing 46.4% year-on-year. Online migration of SMEs happened without interruption in 2021, which supported the uptrend of Smart Store GMV. Commerce revenue increased 40.3% on year and 2.4% on quarter, reporting KRW 324.4 billion. For fintech, with Clear Pay GMV, growth driven by expansion of alliance partners off-platform, revenue was up 52.2% on year and 4.2% on quarter to KRW 209.5 billion. Due to the even growth of Webtoon's [ new ] V LIVE, each of the services in Q1, content revenue was up 40% on year, but down 5.9% on quarter, reporting KRW 130.8 billion. On continued demand for cloud migration, outbound revenue posted a growth, driving cloud revenue up 71.1% on year and down 4.5% on quarter to KRW 81.7 billion. Next on expense items. Development and operational expense was up 32.3% on year and 19.8% on quarter to KRW 374.3 billion due to large increases in accounting expenses of newly assigned stock options on the back of bullish market. [ The figure ] also includes Q1 portion of stock grants announced on April 19, which are to be first paid out July 1. Partner expense was up 35.2% on year and down 4.7% on quarter to KRW 510 billion and continued increase in sales commissions, pays, basis points and other revenue-linked expenses. Infrastructure expense was up 39.7% on year and down 1.9% on quarter, reporting KRW 155 billion due to additional booking of depreciation, following investments in in-server infrastructure. While NAVER Pay point promotion continued, there was lower global marketing spend for Webtoon, but driving marketing expense up 86.1% on year, but down 6.9% on quarter to KRW 171 billion. We mentioned before that we issued $500 million of sustainable foreign currency bond and in this process, received A3 and A- ratings from Moody's and S&P, which was a first for a Korean Internet company. This experience has given us confidence that we can raise funds from the global market at good terms supported by high credit ratings. In the future, we will resort to this option again if need be when we need funds for global expansion or for ESG management. That brings me to the end of Q1 financial highlights. We will now take your questions.

Now Q&A session will begin. [Operator Instructions] The first question will be provided by Kim [indiscernible] from [indiscernible] Securities.

I would like to ask you 2 questions. I see that your play ad growth is being sustained. Can you provide some guidance or what your expansion plan is? Second question. With the partnership with Shinsegae and e-mart, you seem to be focusing on strengthening your logistics. Could you also provide some updates on this?

This is the COO responding to your question on the study ad growth. And for NAVER, as you know, on the first -- on the very first screen for PC and mobile, we are selling impression-based ads on a booking basis. And in other services, we provide performance as well as impression based ads. Basically, the growth in display ad is mainly driven by the performance ad, and we expect those growth trends to continue on this year. We will be focusing on expanding the ad services on the mobile platform. And in terms of the PC, right now, we do not provide performance ad. However, starting Q2, we are planning to introduce performance ad on [indiscernible]. We will continue on with that effort until the end of the year. And we, therefore, think that the revenue growth rate is going to be quite robust. And so we're expecting about higher than 20% growth rate.

This is the CEO responding to your question on the partnership with Shinsegae and e-mart. We are currently discussing on different aspects, but the key areas of discussion includes fresh food, logistics and luxury goods. In terms of the progress, the area that we have really been able to bring about quite a bit of progress is that we are planning to open our services in fresh food come August this year. So that will be connected to the grocery shopping aspect, and we will focus on strengthening the logistics space in order to make that happen. So we want to first focus on fresh food and make that into a success case and then move on to other areas as well. In terms of the details and the specifics regarding those domains, we will be able share with you more detail in the as we move on in the first half of this year.

The following question will be presented by Ahn Jae-min from NH Investment Securities.

The first question relates to your Webtoon. You did provide some color on what [ you had ] in the U.S. North America market. But I think the performance that we've seen from Japan was less than expected. So could you provide some update on Japan? And second is, [indiscernible] issued stock options to all of the employees in February and you're planning to do another program in July, what impact would this have on your accounting expenses?

This is the CFO responding to your question about Webtoon and the Japanese market. At this point, we're very much focused on improving the stability and usability of the platform of LINE Manga and also, we were able to actually drive up the loyalty, the user loyalty and the content. And if you look at the number of users paying for such content, it was actually up by more than 40% on a year-over-year basis, and GMV was up by more than 20% on year. In order to gain back the #1 position in the Manga application app market in Japan, we are going to -- we have -- we will focus on developing content and also strengthen sourcing and change the content recommendation logic and diversifying customer benefits and CRM is also that we can drive up their frequency and also increase the use of content. So that's where we are currently focusing on at this point in time. And also last quarter, we've mentioned that we want to increase the mix of the series-based titles and the LINE Manga. And in the second half of the year, we plan to increase that by twofold compared to the current level. Regarding your question about the stock option and accounting expense increases. During the presentation, you would have seen on the slide that out of the adjusted EBITDA, the stock option-related expenses at KRW 70.9 billion. Basically, the majority of that does not relate to the February grant. It relates to what was granted in 2019 and 2020 for NAVER as well as other subsidiaries, basically on the back of increases in the share prices, the impact of the accounting expense has actually gone up. So the actual amount that's attributable to February grant was not that big. It was only about KRW 5 billion to KRW 6 billion. And also come July, there is going to be a granting and issuing of the stock option for all of the employees, and under that master program currently and the budget we have set aside about KRW 16 billion for that stock option expense.

The following question will be presented by Eric Cha from Goldman Sachs.

If you look at NAVER's revenue mix, more than [ 50% ] is from new business that's showing very high-growth, would like to understand what the company KPI is? I'm sure for the company's top line revenue and your bottom line is both important. But in terms of priority, where do you place focus? Second question, during the Analyst Day, the company management really talked about the Brand Store. In terms of looking forward, what do you expect the GMV mix is going to be between Smart Store versus Brand Store? And what is the difference in the take rate between the 2?

So as you've mentioned -- this is the CFO. In Q1, the search platform revenue mix was actually above 50%. We were expecting that it will be actually less than that, but still due to the growth, it is still above that 50% level. But we think that if we were to look out at the end of the year, the mix will probably be below 50% because as you've mentioned, this growth rate from commerce, fintech, cloud and those areas are quite [indiscernible] . Now in terms of the company's long-term KPI, naturally rather than the search platform itself. We believe that the new business should be showing a high-growth rate, and that is actually the case. Compared to the limits and limits that exist for the advertising-based search platform, we think that there is greater potential and opportunity in the domain of new business. And hence, we think that the growth that we are going to drive from new businesses is going to have a bigger impact and is important as compared to a just short-term profit. And also, in terms of the revenue mix, although we don't specifically communicate the mix from the overseas business, the global business. If you look back, when we first consolidated LINE, the overseas mix or global mix increased to 35%. And I think in several years' time, even if we were to exclude LINE, we believe that the global mix could actually go up to around that level. So we believe that our global exposure would not just be limited to Webtoons, [indiscernible] and LINE works. But going forward, we will be able to have that global mix coming from a search platform and commerce as well. So if you were to look at Brand Store and Smart Store, your question is why are we really pushing both of these pillars? If you look at Smart Store, it started 5 to 6 years ago. Since that point in time, the users, the vendors who use Smart Stores over the years, were able to really grow their business and scale and have made their store into a branded name. And if you look at the past 2 to 3 years, there were also large-scale branded companies who are making use of Smart Stores. Basically, Smart Store satisfy their need. It's for a good channel for them to communicate their own brand and show their brand. At the same time, they have needs to have some freedom as if that mall is their own native mall. So there was need for such tools. So what we did was we start -- took the Smart Stores characteristics and developed further, made it more sophisticated and provided a branded store. In Brand Store, if you look at the merchandise portfolio, it's more diversified and the size of the customer is much bigger. And also, these brands have need and want to have access to certain data, data of their offline customers, but also the online customers, and so there is need for the data. And also, they have need for data analytics as if it was their own native mall. So we have been able to see that data analytics related features have been much more strengthened under branded stores, and we believe that these branded stores are also have a higher level of freedom when it comes to managing the website, and so that really benefits these vendors. And these companies making use of our brand store, they utilize it for their new product launches, and also, it is an effective tool for them in terms of providing marketing support. And they actually have a lot of need to use multiple solutions like setting up of the store also using NAVER Shopping LIVE! and making use of our new product suite. So right now, Brand Store is in a process where it is evolving into a very comprehensive consulting platform. Although since we are only at the initial phase, it's difficult to make projections on the GMV mix, but we are getting a lot of inquiries and questions from these brands, asking us about this program, but also there's a lot of marketing program that the companies are willing to test on top of this platform. So we expect that the GMV growth is going to be quite robust going forward as well. So if we were to look out 5 to 8 years' time, we think that Brand Store growth is going to be on par with Smart Store and be a very important engine of growth for the company.

The following question will be presented by Stanley Yang from JPMorgan.

I would like to ask you 2 questions. First question is your Smart Store growth in Q1 seems to have slowed down compared to Q4. What would be the Q2 trend and the KRW 25 trillion guidance that you communicated, should we look at it from a conservative perspective? We do think that this is quite challenging. Second question is, can you provide some color as to which product categories are driving growth? For instance, is it apparel, consumer electronics? Or in the second half, you're going to be partnering up with e-mart, so will that be a key driver? So if you could just give us more color on each of the product categories that's contributing to growth, that would be helpful.

So on Smart Store, Q1 growth rate was a bit subdued because there was an impact of the New Year's opening as well. But we think that the growth rate for the Q2 is going to recover, and that KRW 25 trillion of guidance, we believe we could meet that guidance. In terms of Smart Store on top of NAVER, grocery shopping and live commerce, and in the second half, we will be introducing the regular delivery, the scheduled delivery service. So with these efforts with the vendors of the smart stores, as well as we are in the process of expanding and linking that up to other different verticals. So we think that the growth is possible going forward. In terms of product category, due to the COVID pandemic, the commerce business was impacted, and there's been a very significant growth from sports, leisure, digital, consumer electronics, households, health care, food, furniture and interior category. So those are the categories that showed quite steep growth, while in Q1, fashion and apparel saw a bit of a dip. In Q2, the trend had turned for fashion and apparel and other accessories. We've seen recovery there because now people are going outside more than they did compared to the previous months. And in the second half, as we enter into the fresh food grocery business, I think we can also look forward to growth in that aspect as well.

The following question will be presented by Kim Jingu from KTB Investment Securities.

So my first question relates to your Webtoon. You mentioned, you will also focus on developing derivative works from your original title. Can you provide some more explanation on that strategy? And also, do you -- are you also considering a potential investment from a global major fashion house? And the question also relates to the Webtoon entertainment capital increase. Basically, the corporate acquisition fund of around KRW 170 billion, would like to have some more color as to what that figure relates to? And in terms of the global content business expansion, aside from SNOW and [indiscernible], do you also have any other plans to launch new services? And also, do you have a road map for [indiscernible]?

So relating to the first question, I think if you can look at it from all of the synergies that we could generate from Wattpad, as the CEO has presented at the very beginning, the whole acquisition process is going to be completed by May. And once that is complete, the traffic exchanges between the companies in terms of users would take place. And we will identify a very impactful content and develop that into Webtoon and Web Novel and launch that at the same time across the 2 platforms. And so there will -- there are popular content of each of their platform, Webtoon and Web Novel, but on top of that, there is also 90 filming projects that's ongoing at Wattpad. So based off of that, we're including that, we will also expand into secondary derivative works, which will further create synergies. What had currently main source of revenue model is advertisement against its MAU pool, but we want to be able to invest the business model that we have in Webtoon and really start to bring monetization in the second half of the year. In terms of possibility of attracting investment from global major production houses, I mean if there is a great opportunity, we would, of course, look at it. But from a short-term perspective, we do not yet have any definitive plans to attract investment from forward [indiscernible] business. In terms of the western entertainment, the capital increase that will be for our U.S. subsidiary, in terms of that amount that is included in disclosure, it's not necessarily that, that amount had been finalized vis-à-vis a certain entity, but the way you should understand it is that the investment will happen in the amount, as is stated in the disclosure. In terms of the global content expansion and any launches of the new business, basically for NAVER, our global expansion is underpinned by 3 pillars. The first is Webtoon and Web Novel. Second is SNOW and [indiscernible]. And then number three is, as you know, [indiscernible] Hive, we will be making inroads into the global [indiscernible] . You also asked about our plans on [indiscernible]. After the listing of [indiscernible], I think a lot of people are having interest on [indiscernible]. It is receiving highlights, once again. Basically, [indiscernible] has [indiscernible] World and the [indiscernible] Studio. It has global subscribers of 200 million. And basically, we're in the process of expanding different tools and services so that we can acquire more users. For the time being, we're going to first focus on gameability aspect. So in Q1, we have first introduced a group of engine based, the jump master game. From a long-term perspective, the creators will be able to not only make items, but also we want to make it into a user participatory platform where they could actually create games [ as well ].

The following question will be presented by Oh Dong Hwan from Samsung Securities.

My question relates to your expense item. I would think that for this year, you will see rise in stock-based compensation expense and marketing. So in terms of development and operations, [indiscernible] year-on-year increase? And in terms of marketing, what is the percentage against the total top line revenue? And second, you've booked [indiscernible] holdings, one-off gain. What was the logic behind that calculation logic? And also, is there a possibility that if the G Holdings share price changes, could that actually [ dissolve ] ?

First question. With the increase in share prices and also the -- relating to the stock option grant related increases because this year, there will be a signing of the stock option as well. So overall, yes, there will be an increase in expense. But even if there is, in terms of hiring of headcount as well as increases in stock-based compensation, if you look at development and operations expense item, it will probably be at a level that is on par with the increase in the operating revenue line item or just very slightly higher than that. However, if you were to carve out stock-based compensation just separately, then year-on-year, yes, there will be an increase of about twofold. In terms of marketing, starting Q2 of last year, our marketing spending was around -- a bit higher than 10% against the revenue. And we think that, that trend will continue. Second question on the disposition gains on GU Holdings. Basically, when it was [indiscernible] consolidated accounts that it was acquisition cost at cost, but when it was taken out, the A holding shares had been evaluated at a fair value valuation. And most of the related shares, about 6 trillion, has to do with Z Holdings, has to do with Z holdings. So basically, as of beginning of March, we reflected, based on the then share prices of Z holdings, we booked more than KRW 17 trillion on our book. And if you look at the assets to be sold, basically, the LINE's net asset value was KRW 2 trillion. So if you do -- if you calculate the difference between the 2, that was placed under the debit side at the net profit for the current period. Whether the fair value assessment is going to -- because of the share price fluctuations, could there be any loss? It's not necessarily that, but actually, next year, when we actually do fair valuation, depending on that and the business plan, the value will then be calculated.

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

So on the advertisement side, Brand Search ad that you have launched against your branded customers? I mean how well is that received? And do you have plans to diversify such advertisement?

In terms of our shopping search, we've added an [indiscernible] to the brand search advertising. So we're right now in the process of fine-tuning that product. We're interviewing with the advertisers, receiving [indiscernible] and so closely monitoring how it actually spans out. So we are focusing on making the [indiscernible] shopping quite stable at this point in time. Also under our comprehensive or integrated search, there is Brand Search and a space for advertisement, and that advertisement product actually is a big revenue base for us, and we will -- we are in the process of coming up with ways to connect it to the brand of stores and ways to upgrade that tool.

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

So 2 questions. First, I see that you have rebound your application, and there is a gifting feature that's been added. Is this a signal that you will be entering into in full scale, the gifting product? I mean [indiscernible] operating with e-mart and Shinsegae? And does this signal that you will also be thinking of gifting of your luxury goods as well in the future? And second, comparing the GMVs of Small Store and NAVER Pay, there's about last year, KRW 7 trillion to KRW 8 trillion gap, which product or service actually account for that gap?

So we use the word on gifting and gifting market, what we are testing is that if you look at NAVER search, there's a small button an icon that says gift. And so we analyze the users' user behavior of this button or icon. And we found out that people who use certain products or who ate certain and bought certain food and ate it and if they liked it, they would gift it to their friends and families. And there was seasonality to this, like during the Thanksgiving holidays or in the month of May. So we felt that it will be necessary for us to improve on the gifting features to provide better ease of use. And also NAVER has its NAVER Pay point and also membership gift, and you can actually decide to gift someone some cookies and so digital shifting as well. We are looking at different domains, like if there are any certain seasonal needs, then that would be one bucket as well. So we are actually defining different gift related themes so this is a feature that really has a strong underpinning of curation aspect to it. So these are some of the things that we are preparing. And on these brand companies that's using our Brand Store platform, we get on all these requests. We get a lot of discussions relating to developing exclusive products or exclusive gift sets. So there are a lot of ideas that we're getting. So we are in the development phase. In terms of our cooperation with Shinsegae, we are talking about the luxury goods category. But whether that's going to -- whether we're going to have luxury sold to the gifting feature or out, these are details, that needs to be discussed going forward. But naturally speaking, a lot of people would just go to department stores to buy gifts. So that, of course, has potential. So we are open to these dialogues of different ideas.

So the difference between the GMV of Small Store and NAVER Pay, NAVER Pay also has other off-platform or outside merchants aside from smart stores. Smart store and on and off-line merchants, all put together, we have in total about 1.54 million merchant base or partner base. So there are other shopping malls and off-line merchants basically, that exist aside from small store, so we expect payment volume to go up in the future.

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

So out of your Search Platform, your [indiscernible] has accelerated at 10%. Do you think that this high rate of growth can be sustained over the year? And also, do you think that it's one of the synergies [indiscernible] we can expect from the commerce players? And was that the key driver behind this? Second, NAVER [indiscernible] on a per annum basis has posted a turnaround and posted a profit. What are some of the key service areas you're going to [ place this ] on? And do you have a proper target of growth target that you have set for yourselves? And when do you think it's going to be the timeline for an IPO?

First of all regarding the search platform, since mid-June because of COVID, there was some base effect. There was a big decline in this year. We are seeing some recovery. We are continuously improving our search service quality and also expanding on the impression of our search ad, and that had a positive impact on revenue growth. We think that in 2021, the PPC recovery trend will continue. We will continue to optimize the impression and also make preparations for new product launches. So on a per-year basis, we think the growth rate is also going to be quite robust. You asked whether this growth was driven by the commerce side, the synergies from commerce, NAVER Search has multiple number of domains of verticals and [indiscernible], of course, is one of the important ones, but there are others as well. So we think that those 2 have been a supporting factor against [indiscernible] . NAVER Financial posted a profit last year. This year, we will continue to grow shopping as it will be an important driver behind this business. And also, we continue to enhance and launch services that could really help us drive the number of pay users as well as the volume. In terms of NAVER Financials, basically, we are providing very unique that -- unique offerings to the users, for instance, the fastest settlement cycle and providing loans to small vendors and also strengthening our services around buy now pay later and so that we can also serve the thin filers. So we want to make sure that we focus on areas that we can be really good at and focus there and really try to grow size. And in the process, capture the data of the user behavior. And based on that, from a long-term perspective, we can engage in many different types of businesses. But for the time being for this year, we were very much focused on strengthening the services for our users. So IPO, when we spun off [indiscernible] an IPO in on margin, that's once again, for the time being we want to focus on making our service offerings much more sophisticated. We don't have any specific plans as of yet. But as we really focus on our service and business, I believe there will be a time, time will come when we will able to communicate to you about a possible IPO.

Well, thank you. That ends the Q1 2021 earnings presentation for NAVER. Thank you for joining. Bye-bye. [Statements in English on this transcript were spoken by an interpreter present on the live call.]