NAVER Corporation (A035420) Earnings Call Transcript & Summary

Good morning. We would like to now begin NAVER's Q1 2022 Earnings Conference Call. For the benefit of domestic and overseas investors, we will first begin with the presentation by the management team and then have the Q&A. [Operator Instructions] Good morning. I am Min Kim NAVER's IR Director. Thank you for joining NAVER's First Quarter 2022 Earnings Presentation. Joining our call today, we have CEO, Soo-yeon Choi; and CFO, Nam-Sun Kim. The earnings results are K-IFRS based provided for the purpose of timely communications and are yet to be audited by an independent outside auditor and hence, are subject to change after the review. I will now turn it over to CEO, Choi, to present on the business highlights.

Hello. I am Soo-yeon Choi, the CEO. Very happy to meet investors for the first time through this call today. Since joining as the CEO, I had an opportunity to closely review NAVER services and business structure, which gave me confidence on NAVER's competitiveness. On top of Search, Shopping, local, Pay, WEBTOONs, ZEPETO and Cloud, which are global tier services and businesses, NAVER offers breadth of value across domestic, global online, offline users and businesses, entrepreneurs and creators creating a potential unsurpassed by others. For the domestic business, our competitiveness is underpinned by solid business portfolio that cater to the usage flow, spanning search, commerce, payments and fintech. There is no other company in the world equipped with such portfolio, and this is NAVER's differentiation. By leveraging this advantage, we will further strengthen our capacity as a platform that most effectively connects users and businesses and will expand our business model, enabling business operators and platform to generate profit together. We will also take this model of success to the global markets with speed and efficiency by collaborating with local partners. First, let's run through the domestic business, mostly around commerce. Based on user inflow from search traffic, biggest number of sellers and database from the Smart Store and user loyalty built on easy payment and knowledge point marketing. NAVER commerce is the platform that can grow most cost efficiently. Quarterly GMV of Smart Store, which played a key role in the expansion of the commerce platform, combined with KREAM, a C2C platform, reclassified under commerce, reported KRW 6.6 trillion, up 22.4% year-over-year. While SME-centric Smart Store posted robust growth to respond to diversified users' and sellers' needs in step of the e-commerce market growth, we've been continuously developing solutions and services and plan to drive growth to brand stores, Shopping LIVE!, grocery, subscription and gifts as they will form new growth engine. These new vertical commerce categories now account for 19% of the total Smart Store GMV with GMV up 78% year-on-year. 115 new brands were onboarded in the brand store this quarter as a total of 771 brands generated KRW 670 billion in GMV, recording 81% year-over-year growth. KREAM, which started with resale of sneakers has expanded to fashion and luxury posting 194% year-on-year growth with quarterly GMV at KRW 370 billion. It will continue to broaden resell product category and eventually become Korea's #1 C2C e-commerce services. Number of cumulative membership subscribers reached over 7 million, contributing to GMV growth. Monthly annual members GMV was doubled after subscription while membership accounts for 40% of total Smart Store GMV. We will continue to expand commerce service line up to follow the growth trajectory seen from Smart Store for SMEs and grow the membership program for sustained growth in the post-COVID era. Thanks to the ideal combination between the take rate and advertising model, we drove balanced growth between growth and profit from the commerce business. We plan to improve the take rate with the focus on the shopping ads and commissions as a key BM. NAVER Shopping's basic take rate will be maintained so as to grow together with SMEs and brands. But in the new vertical commerce services, we will rationalize the take rate scheme in light of high conversion rate and marketing effect. Shopping ads, which is the key revenue source of NAVER commerce, will see efficiency improvement on the back of commerce quota count expansion, robust product line up for brands and personalized recommendation based on purchase behavior, and we plan to broaden advertisers' engagement. We will outperform the market GMV growth and continue to fine-tune business models to enable the higher top line revenue growth. A key differentiator of the commerce platform with NAVER is its capacity to generate earnings. We have embedded the flow from Search to NAVER Shopping and to Pay and have a structure where commerce in each business can grow in the most cost-efficient manner. Marketing point that membership and pay offers, unlike one-off discounts and promotions, drive repurchases which helped expand the ecosystem as the points are reused in Search, Commerce, Pay and content platform, creating a circular loop and with a strong focus on creating loyalty. All of this is the engine behind the growth of NAVER as a whole. We will optimize membership benefits, improve marketing performance from points, which we believe can help bring commerce business profit on par with our Search business. NAVER base growth was in step with NAVER Commerce. But now as a stand-alone business, it's growing and making profit on its own. Q1 GMV was KRW 11.2 trillion, up 34% on year. Off-platform GMV surpassed KRW 4 trillion, up 64% on year, outpacing on-platform GMV for 5 consecutive quarters driving growth. Off-platform growth is due to user inflow from NAVER Pay adoption, which is a testament to the influence of NAVER Pay's point ecosystem. We will continue to grow the size of the payment, both on and off platform and strengthen rewards for users supported by revenue, which will create a virtual cycle of growing the payment volume of NAVER Pay. In Japan, we plan to recreate the formula for success we've seen in NAVER's Commerce business. Japan's major portal Yahoo! and its biggest messenger LINE, already have users and merchant base, which we will leverage in marketing and sales to solidify the flow from Search, Commerce up to payment. Since locking up my Smart Store, Yahoo's sales team is onboarding merchants. And before the year end, Shopping Search, co-developed by NAVER and Yahoo!, will be released on Yahoo Search. After which monetization will kick in with the launch of shopping search ad developed together with NAVER. Japan's commerce market is 3x the size of Korea's market where penetration is only at 1/3, which means great earnings potential in the long run versus domestic market. For the WEBTOON business, with growth mainly centered in the U.S., we plan to actively monetize based on the 180 million global user base. WEBTOON revenue was up 79.5% on year, outpacing GMV growth, which is driven by rise in paying users and spending per user on top of higher take rate on cross-border content. We will make sure this trajectory continues onwards. In case of more mature WEBTOON business in Korea, we tested different BMs and expanded loyal user base, which led to operating profit margin of 20% in '21. And we believe there is, of course, room for further improvement. Since we are bringing proven growth strategies and business models to Japan, which is a bigger market than Korea and since the U.S. is just about to start monetizing, we expect with efficient marketing spend, total margin will improve. While looking after business growth, we will endeavor to bring a healthier organization culture as well. We've put in place ways to quickly detect signs of problem by regularly conducting organizational culture checks introduced August last year. We also designed a reliable process to prevent and deal with workplace harassment. And to enhance accessibility, there are multiple channels to report and receive counseling and we'll also set up an investigational team under the BOD, with relevant expertise for the purpose of fair and speedy investigation. In the long run, the role will expand to cover human rights management so that we may look after the rights of not only our employees but our partners and users. I will also endeavor to strengthen diversity in NAVER. The fact that I, myself am the CEO, a young working mom, is a clear show of NAVER's philosophy towards openness and diversity. NAVER had 2 female CEOs back-to-back and 2 out of 7 BOD members are women. Also, 37% of NAVER are women, and every year, percent of women and the leadership position has risen and is around at 27%. We still have a long way to go. So we will commit to making a culture of diversity, not just in terms of gender but generation field of expertise, background so that we may all be recognized for our capabilities and rewarded for performances to earn a sense of accomplishment. The new management team will play a pivotal role in strengthening business linkages across search, commerce, payments and fintech and create synergies so that we may bring sustainable growth and enhance profitability. In the global market, we will quickly bring results through active partnerships and stand-alone growth from businesses like the WEBTOON. In this process, we will communicate and share the results more actively with investors and do what we can to make NAVER's potential be well reflected in its corporate value. We ask for the support of shareholders and investors on our journey towards challenge. With that, I turn it over to Nam-Sun Kim, the CFO, for financial highlights.

Good morning. I am Nam-Sun Kim, the CFO. This call is the first time for me to be addressing the investors, and I look forward to more such opportunities going forward. And with that, I will walk you through Q1 financial results. But before that, with the new management team starting at the time, we plan to provide more information so that you may have a better grasp of NAVER's business and its performance. But as this is the first earnings presentation since the transition, we hadn't had an ample time this time, but be assured that after we gradually put in place a detailed framework, we will make thorough preparation to help you better understand NAVER's business. NAVER's Q1 consolidated operating revenue, driven by solid growth across all segments, was up 23.1% on year. Due to slow season and accounting changes in Q4, there was a -- on a Q-on-Q basis, a slight decline with revenue coming in at KRW 1.8452 trillion. Consolidated operating profit was up 4.5% on year. But on pay rise, strategic marketing spend and broadcasting fees for the Olympics and belated lump-sum copyright payment for NOW Music as well as content sourcing costs and other one-off factors, which drove our partner expense, operating profit was down 14.1% on quarter, coming in at KRW 301.8 billion. Adjusted EBITDA was down 4.7% on year and 13.1% on quarter coming in at KRW 419.9 billion. Consolidated net profit was down significantly to KRW 151.4 billion year-on-year. This is due to gains from disposition of LINE assets being reflected in the accounts following the completion of LINE and Z Holdings integration in Q1 '21. Q1 operating revenue breakdown is as follows: Search platform was up 12% on year to KRW 843.2 billion. For Search, with broader coverage of Smart Block, a personalized search that embeds users' intent and preference, business quarter growth continued in local and Shopping domain, which drove improvement in Search quality and 9.3% year-on-year increase in Search revenue. Display revenue show robust growth of 20.5% on year. While there was base effect from performance ad introduction over the 12 to 18 months, we have seen a very high growth rate above the market rate. And because of this base effect, we are seeing slower growth. However, we will continue to explore growth opportunities through new ad product development and upgrading of performance ad platform, and by expanding the services of the advertisement and expansion of off-NAVER domain, we will leverage growth opportunities. Commerce revenue was up 20.3% year-on-year and 2.7% Q-on-Q, reporting KRW 416.1 billion. Looking at the breakdown, thanks to good performance of Shopping Search ad grossing revenue on par with Q4, Commerce ads was up 27.5% year-over-year. NAVER's Shopping GMV was up 18.8% on year to KRW 9 trillion. Despite union strikes, the delivery companies and seasonality in Q1 with the reclassification of KREAM and AMUSE this quarter, brokerage and sales revenue was up 23.9% on year and 3.5% on quarter, sustaining a steady uptrend. This is a testament to NAVER's competitive commerce model underpinned by its Search ad and 3P Smart Store. Lastly, we are seeing sustained increase in membership subscribers, above 7 million, with spend per member doubling versus before membership subscription. As a result, membership revenue was up 74.7% year-over-year. Now let me elaborate on the background to the Commerce revenue growth and also provide some color on earnings capacity of the Commerce business, which I believe is a point of interest for many investors. Internally, we use the concept of contribution profit, which is revenue, net of direct expenses, including labor cost agency and content expenses and strategic and discretionary business expenses like marketing spend and other related expenses such as infrastructure and outsourcing cost. Track record shows that contribution margin is around 40%, not much different for both Search platform and Commerce. But in the second half of 2020, with the launch of the membership program, Pay Point reward, promotional schemes were also introduced, driving down contribution margin of commerce to around 20% level. However, I can tell you that the profitability is still far above that of our peers in the industry. And also, if you were to carve out Commerce-related marketing expense, including membership points, actual contribution margin can be as high as 1.5x that of the Search platform. In light of the fact that most commerce platforms would spend large amounts of logistical costs or investment and considering their IT infrastructure cost are much more inefficient compared to NAVER, this can be a differentiator unique to NAVER Shopping businesses earnings capacity. Now for fintech, GMV from merchants off-platform was up 64% on year, driving the total GMV growth. As a result, there was a 31% year-over-year growth. And on fee cut in January as well as base effect from changes in accounting treatment in Q4, fintech revenue was down 6.9% on quarter, coming in at KRW 274.8 billion. But the total GMV, however, is continuing on with a 3% up trend on a Q-on-Q basis. On sustained growth from WEBTOON and SNOW, content revenue was up by whopping 65.9% on year. But on business transfer V LIVE in March from the consolidated statements and reclassification of KREAM and AMUSE sales, the effect from WEBTOON accounting treatment on a gross basis revenue in Q4, there was 7% Q-on-Q decline to KRW 217 billion. But driven by high-quality content and expanded BM, WEBTOON saw its GMV up 31% year-over-year. And with the expansion of cross-border content, revenue was up around 80% on year to KRW 163.9 billion. Cloud revenue was up 15.3% on year, coming in at KRW 94.5 billion. But considering the ordering cycle, we expect to see solid growth continue this year. Next is on expense items. With retroactive treatment of wage increase of 10% agreed with the union in April, development and operational expense was up 19.8% on year. In Q4, there was one-off increase in expenses from preemptive developer acquisition and typical year-end incentive and severance pay provisioning and stock-based compensation, while in Q1, SBC is yet to be paid. Due to the high base effect, 10% basic pay increase is more than offsetted, bringing development operational expense down 3.9% Q-on-Q to KRW 448.2 billion. During 2020 to '21, we went out aggressively to gain a better position in talent acquisition, which led to head count increase of 18% year-over-year. From this year on, however, aside from special circumstances like new business initiatives, we will closely look into the need for new hires. In order to improve OP margin and -- our hiring policy is going to be much slower than 18% in net addition. And we will manage it to the level pre-COVID. With the purchase of broadcasting rights for the Olympic Games and belated lump-sum payment for music copyright and other nonrecurring expenses and on higher revenue expense, including payment and sales commissions and pay basic points, partner expense was up 36.9% on year and down 2.2% on quarter to KRW 698.3 billion. Infrastructure expense was up 12.6% on year to KRW 174.5 billion. Lastly, on the back of strategic marketing spend to gain an edge in global WEBTOON competition for user acquisition, marketing expense was up 30% on year and 4.5% on quarter to KRW 222.4 billion. In terms of marketing expense, I believe it is an opportune timing to review the practical efficiency of Pay Points and membership, while we plan to secure performance marketing expertise for the content business, which is making inroads globally and where we will use quantifiable approaches more efficiently. Due to a decline in operational cash flow on the back of lower operating profit and higher CapEx for the new building and IDC construction, Q1 FCF was down 30% Q-on-Q. Well, versus last year, CapEx fell with lower cost for server purchase. FCF was up 13% reporting KRW 255 billion. Despite global market volatility and macro level risk, we will do our best to continue on with sustainable growth with the underpinning of NAVER's level of business portfolio. This ends Q1 financial highlights, and we will now entertain your questions.

[Operator Instructions] The first question will be presented by Eric Cha from Goldman Sachs.

I would like to first congratulate the new management team for taking office and would also like to thank you for providing more disclosure. That is quite helpful. I will be asking 2 questions. One long term, the other short term. A couple of days ago, the company shared with us your 5-year guidance, and you also talked about the company's new business initiatives. You mentioned KRW 15 trillion as your long-term objective. What is the mix of the new business contribution to that figure? And from a short-term perspective, considering the higher level of fixed cost, what is your projection for operating profit margin going forward? And also, I would like to understand what management's view is in regards to striking a balance from a short-term perspective between top line revenue and profit.

Thank you for the kind words of congratulations. I would like to respond to your first and third question. Responding to your first question about that KRW 15 trillion and the contribution to the new business performance is going to be making. With regards to that question, I would like to say that if you look at the history of NAVER, for the past -- every 3 to 5 years, we were able to grow the NAVER business twofold. And our capabilities have been proven over the years, and I believe that it will be possible for us to repeat that performance. In terms of the revenue growth going forward, for the domestic Korean market -- just one moment, please. For the revenue growth in the Korean market. We expect we will be able to drive growth top line from Korea. And also from Japan, we will be able to bring about growth in terms of Search and Commerce. And also for the U.S. market, including the WEBTOON business, we expect that there will be diverse global business from which we will be able to see top line growth. Now regarding the new business initiatives, it's not going to be a completely new business XYZ, we will be focusing our capabilities and what we do best in terms of Search and Commerce, based on which we will be able to new growth engine. And that actually applies to our global strategy as well. So all of these endeavors are reflected in that KRW 15 trillion that we previously communicated. Responding to your third question about striking a balance between revenue and profit, as an Internet company, as you know, NAVER was very much focused on bringing about growth and we believe that we have an unwavering commitment behind that. However, we also believe striking a balance with profitability is an important aspect. And from that perspective, we are thinking very hard as to how we can notch up the profitability from the new business endeavors that we implement. And also for this year, we will also be thinking hard as to how we can make our marketing spend and labor cost spend much more efficient. And we expect through all of these efforts, we will be able to further improve our profitability.

You also asked about the operating profit margin guidance, although it will be quite difficult to provide you with a specific number on that. If you look at our cost structure and look at our fixed cost element, it's comprised of labor cost and infrastructure cost, you would know that. And also, our marketing cost in terms -- may not be fixed cost per se, but it is a discretionary and strategic spending. And in terms of the labor cost, as you know, last year, we have significantly increased new hires, which had a significant increasing effect on our overall labor cost. But in terms of the head count number, we believe we will be able to go back to the previous level, I mean, before that of last year. So with that trend, I believe that in terms of the operating profit margin, we will be able to bring about some improvement compared to Q1 numbers. And I'm sure that the analysts would be able to calculate or project that as well.

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

I would also like to congratulate the new management team, CEO, Choi and CFO Kim. I also have some questions relating to your mid- to long-term revenue guidance. So you will be doubling your revenue in 5 years' time, can you provide the split between domestic and global business? And in terms of your global revenue growth projections, you've mentioned Yahoo ! Shopping Search and potential monetization from these other markets. What is the revenue share scheme look like? Would like to get some color as to the size and the scale at which you would be able to benefit from such global top line growth. And what is the, I guess, contribution from inorganic or M&A in that KRW 15 trillion target? Second question relates to your e-commerce strategy. The overall e-commerce market growth has slowed and the competition has become much more fierce of late. I understand your model is asset-light. You enter into partnerships and alliances. Do you plan to carry on with this strategy? Or would you be changing that? I asked this question because your delivery capabilities are improving. But in terms of quick delivery, how in scale would you be able to grow? You have partnerships with CJ Logistics. But compared to your competitive peers, there seems to be still some gap in terms of your delivery, I guess, capabilities. And so I would like to understand whether you're considering investment as well.

So I, myself and CFO, will share responding to your questions. In terms of the mid- to long-term guidance, I understand that out of the top NAVER's revenue, the global portion currently takes around 10%. And we shared with you the guidance under the assumption that we would be able to bring about 20% or more growth from that. Just to elaborate that 10% is a revenue net of line related revenue. Responding to your second question about the Yahoo! Shopping as well as monetization for Commerce. Currently, these items are under discussion with Z Holdings, our partner. So it is a bit premature for me to provide you with the details. Now having said that, there is already a pre-existing revenue business model in Korea for NAVER Shopping, and also there are contractual relationships that already exist between Yahoo and Google. So in terms of the overall structure, I do not believe there's going to be a significant difference.

You asked about the inorganic or the M&A mix from that target that we shared, that KRW 15 trillion we mentioned, it's not necessarily, I guess, technically a guidance, but it is an objective for us in light of the track record of our company. Every 3 to 5 years, we believe that doubling our size will be possible. So since at this point we do not have any definitive M&A that is upcoming, therefore, it's quite difficult to say with regards to the contribution that will be made to our target from such inorganic growth, to provide you with a specific figure definitively. We, however, believe that we will be able to attain the growth rate even aside from whether we have -- we embark on an M&A or whether there is an inorganic growth or not. So the average, we believe that -- so the -- above the average growth rate, which will be triggered by inorganic growth or acquisition, that element is not reflected in the target that we communicated.

Responding to your second question about the e-commerce market slowing its growth and whether our strategy of asset-light and partnership model will continue, as we -- near the end of the COVID-19 pandemic, where there are different whether climate-related external factors that exist, so there are multiple factors that would come into play. But it is true that for the past 2 years, there's been a steep growth in e-commerce market. And we believe that, that growth we are expecting to see some normalization of that steep growth rate as we go forward. But it's because of this backdrop, I believe, that our strategy has been very valid. And so at this point, we do not have any plans to change that strategic direction. So unlike our competitors, who are directly making investment into logistics network, we will continue to focus our resources on acquiring customers and SMEs. And also, we will continue on with the point marketing so that we could -- we attract the purchases of the user base and, hence, enhance their loyalty. And I think that this model is working quite well and especially this era with COVID. And in terms of logistics, we believe that user experience is critical, and we are currently expanding this strategy underpinned by partnership and alliance model. Although we are only at the beginning stage of the services, we believe that the quick delivery, especially for FMCG products are quite important. And although the overall percentage of quick delivery is not that big compared to the number of orders that are coming in, currently for FMCG quick delivery, it's accounting for 20% of the total volume, and we are seeing a quite fast-paced growth. And our partnership with CJ Logistics, previous years, we focused on building out the system and testing those systems, and we are expanding our collaboration with CJ Logistics. And going forward, we plan to double the volume. And by 2025, we plan to expand same-day delivery nationwide.

The next question will be presented by [ Jin Do Kim ] from [ KIM Securities ].

First question relates to your secondary derivative content. I would like to know the lineup of such contents that you've -- you are planning for this year and also the size of investment that you will be making through producing those derivative content products. Second question relates to metaverse. What is your annual investment for metaverse? And in order for you to enhance quality of ZEPETO, what plans do you have in terms of making investments into solutions and services?

So in terms of our WEBTOON and secondary content, we have dozens in the current pipeline. Recently, we've seen Netflix #1 from what -- WEBTOON. And in the year or 2 time frame, we've seen more than 5 in terms of the top 10 Netflix content. It's so hard to expect specifically as to how many we will see going forward, but I can assure you that we have many in our pipeline. So there's been a recent coverage by foreign press on this topic. But in the past, companies like NAVER WEBTOON, the holder of the IP did not make direct investment or equity investment in the secondary content production. It was usually the investments were made by OTT players like Netflix. Now well, however, we plan to shift the strategy slightly. We will go more aggressively at -- in production investment. We've set aside a resources for investing into such content and production of such content. And the size of that is about more than KRW 100 billion. So we will be bringing the WEBTOONs and developing them into and producing them into dramas and for feature films. In terms of how quickly we will use up these resources, it's hard to say. But considering the drama, dramas usually take up about KRW 5 billion and feature films, about KRW 15 billion. That is the size of investment requirement. A key advantage of WEBTOON is that it is a very low-cost source IP production because it's actually produced by the users themselves. What we have as a competitive edge is that we could use our machine learning engine to predict the success rate with regards to which type, which title is going to be most successful. So we can use such quantifiable measurement approaches. And we can be very selective in making significant amount of investment into production of such content. And so I expect there to be quite a bit of equity upside.

Now metaverse is already an area or a domain that NAVER had been doing quite -- had excelled in because it is a form of a community. So based off of the technologies and capabilities that we have in terms of, for instance, Cafe, BAND, Weverse, ZEPETO as well as the technological capabilities that we've been able to culminate and Arcverse, where we already have those under our belt. So we do not have any separate specific investment for metaverse at this point. So we've been always focused on the true nature of what it is that the Internet users are seeking when they are using the Internet. And we are really focusing on planning and developing technology and services that could cater to that. So we will not be completely go off track and think of completely new services or new interpretation of those services. In terms of improving quality of the services provided by ZEPETO as well as improving the metaverse-related services, we will continuously the in-source or embed technological basis and the use of the DDoS tools, for instance, but it's hard to provide you with the concrete figure in terms of the investment plan. But we will continuously secure relevant and required technologies.

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

I would also like to congratulate the new management team for taking office, and thank you for these additional disclosures. I have 2 questions related to WEBTOON. First, for the NAVER WEBTOON Korea entity, we see that the margin for '21 has significantly risen compared to 2020. Can you provide more color in regards to, for instance, user number, paying ratio and cross-border content? Second question for your global WEBTOON businesses, when do you think they will also show results that are on par with what you are seeing in your domestic business? And what is the growth strategy for your global business?

Now first tackling the specific question on paying ratio and cross-border content ratio, we will communicate those figures in the upcoming quarter, conference call. We will prepare those data and communicate that to you. Now if you look at the domestic market, we have seen a higher user loyalty as well as adoption of various different types of business models, global cross-border content and expansion of the distribution of such content. And we believe that the operating margin from the domestic business had been quite positive, and I think this is attributable to the fact that we have a very solid WEBTOON ecosystem in place. And of course, for the global market, we believe that we will be able to bring up that margin on par with that of the domestic market. But having said that, at this point, it is too premature to talk about when we'll be achieving consolidated basis, BEP as we need to continuously make marketing spend in order for us to solidify our positioning as an unrivaled #1 provider in key markets, including U.S., Japan and Europe. Now thanks to all of these marketing spend and our assets and efficient marketing spend, we have already a #1 positioning in major countries in the world and also with the synergies that we are able to enjoy from acquisition of Wattpad and eBOOK Japan, we believe that this will continuously support improving of the user loyalty and their time spent on our services. And those indicators, we believe, we'll be able to come up to the level of what we are seeing in Korea in 3 to 4 years' time. And hence, from a long-term perspective, we expect to see margin to also improve.

One more thing I would also like to add is that on a consolidated basis, if we wish, we can actually achieve BEP as of today. It's because structurally, if we increase global revenue that's actually more favorable for the company because of the contractual arrangements we have with our partners in U.S. and in Japan because the take rate there is higher. And also, considering that the consumers in these countries and in terms of their willingness to pay, in light of that, if we see a global mix increase, then structurally, that is going to feed into improving our margin. That's how the fundamentals are laid out.

The next question will be presented by Y. Kwon from Daiwa Securities.

I would also like to congratulate the new management team. My question first relates to you've shared the user number or user target of 1 billion within 5 years. But globally, in light of the platform, the uniform platform and also the different situations across countries, user acquisition or, for instance, our core client paying users, all of these cycles, I think that it's going to be more expensive for you to acquire the users. So in terms of the cycle, how long and how high a cycle are you expecting? Going forward, would your focus be more on improving the operating profit versus the margin itself? And under Global 3.0 Initiative, you've shared that KRW 15 billion revenue target within 5 years. And I think the investors are looking forward to sharing in on that result. Would you be changing your shareholder policy going forward? Or would you be sticking to the shareholder return policy that you had previously under the Global 2.0 Initiative? And also, compared to -- the reason why I'm asking this question is compared to the investments you are making, I think the rewards or the benefit that the investors are getting is much less in light of the MAU of 200 million and revenue of above KRW 2 trillion for LINE, for instance, if investors hadn't been, I guess, getting less than what they had expected in terms of the investment that they're making. So that's the context for my question.

Yes. So our objective is to achieve 1 billion user base within 5 years. And you asked about -- and you had a bit of a concern regarding the investment cycle and the amount of expense that this will entail. But as you know, our company has been making a challenge into the global stage for the past 15 years. And we know it very well that it is not easy to acquire new users. But through our experience in tapping into North America, Europe and Japanese market, we were able to -- in a very efficient -- we were able to understand the idiosyncratic characteristics of these individual markets and have been able to employ a very efficient approach to enter into those markets. And through the content and global services, we already have a user base of 0.7 billion. And also in Japan, for Search and Commerce, we have partnerships with Yahoo and LINE. And in North America, for the WEBTOON business, we have employed a very fast growth strategy, which has proven to be quite valid. So if we stick to such strategies going forward, we expect that without entailing significant amount of cost, we will be able to attain that 1 billion user base. I'm quite optimistic on that. Relating to your question about improving margin versus operating profit, although we cannot share any specific number at this point, for 2022, our priority will be growing the top line revenue at the same time controlling the labor and marketing cost. And we will endeavor to make sure we improve our margin.

In terms of the shareholder return policy, we do not have any -- we haven't developed any new shareholder return policy to announce. We think the best way to provide the maximum amount of value back to our investors is not in the form of cash payment but by leveraging the already proven and excellent business models compared to our peers in terms of commerce and Webtoon business and making reinvestments into our business so as to create value. Now having said that, the inorganic investment, I'm sure it's a very important topic for all of the management of all of the companies and a difficult one. When there is an inorganic investment made, then we need to make sure that we give the value generated back to our shareholders. And whether it takes a form of acquiring a control of a business or an acquisition without a business control, what's important is that we actually bring about accretive value and make sure that the holdings of the shareholders are not diluted. We -- and the process of embarking on any such initiatives, we'll make sure that we take care of all of these details as well.

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

My question relates to your short term, maybe 1 year time frame growth. Your advertisement and commerce business, in terms of the revenue growth, had largely slowed. Is this a temporary phenomenon? Or do you think this is structural? And when do you think the rebound could come? And for next question is for the advertisement, performance ad had actually driven quite significant growth. I would like to understand what other products are currently in the lineup for you to bring additional growth from advertisement and commerce.

Yes. That's a very important point that we are also very keenly looking into, and I understand that there may be some concerns or interest on the part of the shareholders as well. But if you look at the advertising market over a quarter, if you -- and look at the number of the measurement of traffic, number of clicks or the impressions regarding NAVER, it actually is not attributable to these factors. But if you look at Q4, the performance was actually quite good. But we've seen some drop in CPM and PPC. But what is, however, encouraging is that if we track a couple of weeks' worth of indicators as we came into month of April, we are seeing the advertisement-related indicators showing an uptrend. Up until Q1, there were some elements like presidential election and macro level risks, which really, I guess, pressed the advertising budget on the part of the advertisers. So there has been some decline and basically the unit cost for these advertisement. But I believe that we are seeing a recovery trend in the month of April, and I am quite positive on that front. And also, performance ads with the introduction of performance ad last year, we've seen a significant growth, and growth had been above-market average growth. And that also is feeding in as a base effect. So that may also make the Q1 figures look more subdued.

In terms of the performance ad growth, in the first quarter, we have newly applied performance ad and new services like mobile and securities, and we will continue to do so, increase on the services where we actually -- performance out to mobile PC and many other services. And in the second half of the year, we're going to also try to expand on the impression by using external media as well. So I can assure you that growth will not significantly dip, and our efforts towards developing new advertising products will also continue. A good case in point is place ad, a weekly number of business sellers coming on board are increasing. On a Q1 perspective, Q1 basis, number of advertisers stand at 175,000. And in light of the fact that total number registered into place ad is 2.13 million. I still believe there is room for growth. Other than that, we have special DA, display ad and full page advertisement and dynamic advertisement as well as upgrade targeting for performance ad. So we plan to, as such, continuously develop appropriate products and services for the search platform.

Thank you. That ends the Q1 2022 earnings conference call. For more questions, please contact us at the IR team. Thank you once again for joining us today, and I look forward to your support and encouragement. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]