NAVER Corporation (A035420) Earnings Call Transcript & Summary

Good morning. We will now begin NAVER's 2024 Q4 Earnings Conference Call. For the convenience of our investors joining from home and abroad, we will provide simultaneous interpretation for the presentation and switch to consecutive interpretation for the Q&A session.

Analysts and investors, good morning. I am Paul Choi from the Capital Markets Office. First and foremost, we sincerely appreciate your interest in NAVER over the past year. As this is our first opportunity in the new year to address our investors, we thank you for joining NAVER's Fourth Quarter of 2024 Earnings Call. We have CEO, Soo-yeon Choi; and CFO, Nam-sun Kim, joining us on our call today to provide an overview of our business status, strategy and financial performance, after which we will entertain your questions. Please note that the earnings results are K-IFRS based provided for timely communications and have not yet been audited by an independent auditor and hence, are subject to change after such review. With that, I will turn it over to our CEO to present on the business highlights.

Good morning. I am Soo-yeon Choi, the CEO. In 2024, NAVER has been making multifaceted efforts to strengthen the fundamentals of its core business and enhance platform capabilities. To lay the groundwork over the past year, we have unified company-wide services and user behavior data, establishing an integrated data analysis environment. We are incorporating AI technology into the analyzed data to use it for various space and page layouts within the NAVER app to personalize the entire user journey. In particular, in Q4, we improved the shopping search UI in conjunction with the launch of NAVER Plus store. As a result, we observed enhanced efficiency in commerce ads. The year 2025 will be a crucial period for NAVER to fully implement its on-service AI strategy. We will enhance AI technology to effectively apply it across various products, including search, main page, commerce and content and focus on creating new value and business opportunities based on this foundation. In commerce, we will introduce the new NAVER Plus store app. In the first half of the year, this will expand the search-centric shopping experience into a more personalized discovery-driven experience, delivering a more intuitive and powerful shopping journey. In 2025, NAVER, by incorporating generative AI into innovation-driven AI services, content ecosystem expansion and online to offline experiences such as place, maps and digital twin aims to offer products with higher user satisfaction. Let us now take a look at our search platform performance. NAVER search platform, driven by the ongoing reinforcement of platform competitiveness and ad efficiency optimization recorded double-digit growth in Q4 continuing from the previous year. To strengthen the competitiveness of the search platform, we focused on addressing queries that require a high degree of reliability. We have continuously expanded the indexing of documents from public institutions and other authoritative sources while developing technology to increase exposure to credible content. As a result, Q4 saw a significant increase in both impressions and clicks for public institution websites. In addition, we have established company-wide data governance to enhance the efficiency of our data management system, standardizing service data and creating an integrated analytics environment. This framework is expected to reduce future data management and analysis costs while enabling better utilization of data for service improvements. Furthermore, NAVER continues to strengthen its unique competitive edge by integrating AI-based search optimization technologies and UI improvements, providing users with an innovative discovery and consumption experience. We have leveraged AI and data to optimize diverse space and content layout within the NAVER app. To enhance personalized discovery experience, we are preparing a revamp of search home and content placement, improving content accessibility and readability. In Q4, we enhanced personalized recommendations in the home feed and introduced a new feed-based layout to encourage tailored content consumption across various categories. In addition, we converted the sports and entertainment page into a feed format and introduced feeds into some parts of the verticals such as cafe and blog. This improves content discovery with a more intuitive browsing experience. In 2024 and '25, we will further refine AI-driven content analysis and recommendation technologies, enabling users to naturally discover and explore content based on their individual preferences and interests. And our focus will be on increasing user engagement while fostering high-quality content production. For this, we are strengthening AI-powered content creation tools for NAVER's diverse creators, including blockers, clip creators and feed makers. Currently, 68% of NAVER bloggers are in the 10 to 30 age group and blogs are evolving beyond simple recordkeeping to active community spaces, enhancing creator connections and communication. Moving forward, we plan to strengthen technical support to improve NAVER and group recommendation algorithms effectively connecting users and creators with similar interests to share and create content. Interest in clip content has surged, leading to a more than twofold increase in applications for the fourth round of the Clip Creator program, which is set to begin in February. NAVER will enhance AI-driven content analysis and curation as well as connect diverse ecosystems to ensure user-generated content or UGC gains optimal exposure across NAVER's platforms. To maximize synergy, we will introduce an affiliate model in which Clip Creators can collaborate with brands and Smartstore sellers. We will also strengthen the reward structure, encouraging creators to experiment with diverse and innovative content. In Q4, the average daily engagement time on NAVER's mobile main page grew 10% Y-o-Y for 3 consecutive quarters, demonstrating the platform's strong competitiveness. Specifically, the number of daily visitors to the home feed continues to grow from the previous quarter. Notably, users who revisit the platform day after their first visit reached approximately 60% in Q4, indicating consistently increasing user engagement each quarter. For Clip, the monthly average daily play count increased tenfold Y-o-Y, and we aim to achieve 2x the current view count by 2025. Beyond mere content consumption, Clip has demonstrated high conversion potential in areas like place and shopping. 40% of all Clip content includes place tagging, reinforcing our expectation that Clip will become a key service that generates strong synergies with NAVER's major offerings. To enhance the connectivity between search and discovery, we have introduced search feed, which recommends feedstyle content related to the entered search keyword and short tense, which suggests popular keywords and content by topic. Through these services, we are creating a virtuous cycle where the discovery and exploration experiences that begin with the search lead to new searches. This has contributed to an increase in not only app time spent, but also the number of search sessions compared to the previous year. Meanwhile, we are continuously working to expand the scope of our ads. In search ads, we have introduced expanded search, which automatically generate and display ads based on keywords that are highly relevant to the advertisers' website content, thereby increasing monetization of long-tail keywords. In display, we have expanded feed ad inventory and enhanced targeting, which has led to improved efficiency. As a result, feed ads recorded about a fourfold higher CTR compared to general banner ads and advertiser spending on feed ads has increased. We are also working on expanding beyond the NAVER platform. NAVER's PowerLink and display ads have demonstrated high efficiency and are now being exposed on various external platforms. And as we saw place ads make its way into down in Q4, we plan to actively respond to advertisers' demand for broader coverage in the future as well. Lastly, allow me to elaborate on where we are headed with AI technology and services. In the first half of the year, we intend to apply AI technology to users' queries and introduce a generative AI feature that precisely understands user intent and provides summarized optimized information named AI briefing. We will start with queries that require definitive or specific answers, offering credible and concise information while recommending contextually relevant content to enhance search accuracy. Over time, we will expand this feature across informational search and the entire discovery process. Through this, we will further strengthen the virtuous cycle of search to discovery than back to search, allowing users to stay longer on our plan platform to search more things linked to content recommended by AI briefing during their discovery process. Also, we will continuously refine AI precision to enable users to engage in this process with greater ease and speed. NAVER aims to go beyond simply providing search results and we will continue to invest in technology that ensures users to quickly and accurately obtain broad-ranging information through AI-driven discovery. In the ad segment, we plan to introduce automation for the entire ad execution process, including bidding, creative production and keyword selection while also implementing budget optimization and features within our advertising technology platform at boost. This implementation will enable advertisers to run the most effective ad campaigns on and beyond NAVER's platform, maximizing ad efficiency. Furthermore, we will continue improving existing ad products, optimizing ad placements and strengthening sales efforts for advertisers to enhance our competitiveness as an advertising platform. Our goal for 2025 is to achieve results that exceed the market growth rate. Moving to our commerce business. In the fourth quarter, due to the combination of political instability, economic uncertainty and major social issues, the e-commerce market entered an unprecedented period of low growth. Despite the evolving environment, NAVER has continued to improve user and seller experience through the launch of NAVER Plus store and enhanced membership benefits, driving Smartstore growth. As a result, NAVER's on-platform GMV grew 11% Y-o-Y and total commerce GMV, including outlink marketplaces, increased 6.5%, exceeding the market growth rate. Launched at the end of October, NAVER Plus store strengthened the value of shopping centered on discovery and exploration. And by expanding personalized search features based on Smartstore and enhancing user benefits, we successfully achieved a rebound in GMV for 2 consecutive quarters. Since its launch, NAVER Plus Store has been recognized by users as a dedicated space for Smartstore, where they can easily discover high-quality products. The platform is increasingly being utilized by a loyal customer base, confirming that user behavior is aligning with our intended direction. Moreover, our enhancements to UI/UX for the discovery experience have led to an increase in user engagement. As users become more familiar with the interface and discovery focused pages within Plus Store and as membership benefits and delivery quality improvements create additional synergies, we expect this to positively impact the overall NAVER Shopping ecosystem. In November, we expanded our membership ecosystem by partnering with global entertainment service, Netflix to offer differentiated benefits beyond our platform. Although the partnership has been in place for a short period, it has already resulted in a 1.5-fold increase in the average number of daily new subscribers. And also the shopping expenditure of these newly acquired members within NAVER Shopping has increased by over 30% compared to before they joined, demonstrating positive effects. Notably, among the new subscribers, those in their 30s and 40s, we typically show high spending in order frequency across most shopping indicators accounted for over 60% of new sign-ups, and we anticipate that they will become a highly loyal customer segment in the future. In terms of delivery, we are working to enhance user convenience. The free shipping promotion for the guaranteed delivery membership introduced in Q2 last year has been confirmed to contribute to GMV growth and will be added as a standard benefit. Also, the introduction of Sunday delivery and same-day delivery has helped improve overall delivery quality. With the expansion of services such as seller guaranteed delivery and preferred day guaranteed delivery, the growth rate of guaranteed delivery GMV accelerated in Q4, and we expect continued coverage expansion in the foreseeable future. With the launch of Plus Store, we have also made changes to commerce ads. In the shopping search section, we have redesigned the UI towards higher efficiency and refined personalized recommendations to help users discover the most relevant products. In addition, we have improved ad efficiency by using AI technology to optimize ad creatives and expand keyword matches, enabling advertisers to access a larger database while ensuring users receive more accurate and tailored ads. In Q4, these initiatives generated strong synergies, leading to significant double-digit growth in commerce ads for the first time in 9 quarters. Going forward, we will explore new growth opportunities with the launch of a stand-alone NAVER store app. In the case of Poshmark, despite a slowdown in growth due to rising advertising costs from the U.S. presidential election and the holiday season as well as intensifying e-commerce competition, it has still maintained a solid trajectory. Also due to ongoing cost optimization efforts and growth in the advertising business since last year, the business achieved positive operating profit. Going forward, the focus will be on improving conversion rates for both sellers and users by utilizing AI for automated product registration, personalized recommendations and integrating the NAVER search engine. Next, allow me to provide an update on our fintech business. In 4Q, NAVER pay TPV reached KRW 19.3 trillion, representing an increase of 18.3% Y-o-Y and 3.7% Q-o-Q. Among this, non-captive TPV grew 27% Y-o-Y to KRW 9.8 trillion, driven by the addition of new merchants. And for the full year of 2024, it is up 38% year-over-year or Y-o-Y. Meanwhile, the proportion of non-captive TPV expanded from 44% in 2023 to 50% in 2024, continuing the expansion of NAVER's ecosystem across both online and offline channels. NAVER's Platform business saw continued service upgrades, including the revamp of real estate marketplace in October and the main page of our insurance service in November. As a result of the user interest-driven improvements, time spent for our real estate marketplace grew 44% and the annual average number of monthly active users exceeded 10 million, showing positive results. This year, we plan to further strengthen our position as an integrated financial platform by providing AI-driven, more personalized recommendations and discovery experience across loans, insurance, real estate and securities. Moving on to Webtoon's fourth quarter results. Webtoon's Q4 revenue recorded KRW 427.9 billion, increasing 6.8% Y-o-Y and 0.9% Q-o-Q. For reference, Webtoon Entertainment is scheduled to announce its earnings on February 25. As such, we are unable to provide detailed performance figures at this time. However, based on the preliminary estimated results disclosed today, revenue on a constant currency basis, excluding deconsolidated and transferred operations increased approximately 10% year-over-year. For more detailed information, please refer to Webtoon Entertainment's earnings release. Lastly, I would like to elaborate on the business performance of NAVER Cloud. NAVER Cloud's B2B business is growing centered on the continued delivery of NAVER Cloud and LINE Works. In particular, the delivery of NAVER Cloud equipped with HyperClova X continued to progress smoothly in Q4. And in December, we concluded the deployment contract with Korea Hydro & Nuclear Power, which is expected to generate revenue starting in the first half of this year. For LINE Works, the number of paid IDs grew 14% year-over-year, leading to a 27.7% increase in revenue. Moving forward, we will expand our product lineup, including AI note and AI voice response system to attract more users and increase paid subscriber growth. NAVER Labs has been researching and developing digital twin technology for future growth, and we are now exploring ways to expand this technology into the super app sector in the Middle East. As part of this effort, we recently completed the approval process for the establishment of NAVER Arabia, NAVER's regional headquarters in the Middle East. NAVER Arabia will serve as a hub for exporting NAVER's technology, not only in Saudi Arabia, but also across the Middle East and global markets. We will share further details as developments progress. In November, we hosted DAN 24, where we showcased our AI expertise in advertising and shopping while unveiling the NAVER twin XR platform. Technological capabilities supporting innovative service development in areas such as AR, VR, MR, robotics, autonomous driving and smart city innovations were portrayed at the occasion. Going forward, NAVER will continue not only to enhance its services and platform through AI integration, but also invest in future growth areas such as advancing its app, which serves as the foundation for local services and spatial intelligence as well as AR navigation, digital twins and robotics. Since last year-end, various social issues have further dampened consumer sentiment. And as a result, the overall outlook for the ads and commerce markets has been revised downward, and we anticipate a more challenging year compared to the previous year. Nevertheless, over the past 2 years, NAVER has strengthened its platform's core competitiveness by integrating AI into the tools provided to creators, businesses and advertisers while also creating new monetization opportunities. Moving forward, we will continue to enhance our technology-driven services and platform capabilities, striving for mutual growth with various stakeholders. Now CFO, Nam-Sun Kim, will provide an overview of our financial performance.

Good morning. I am Nam-Sun Kim, the CFO. Allow me to present the financial results for Q4. In Q4, NAVER's revenue driven by accelerated growth of its core businesses, including search platform and commerce was up 13.7% Y-o-Y and 6.3% Q-o-Q, to KRW 2,885.6 billion. On an annual basis, revenue increased by 11% compared to the previous year, reaching KRW 10,737.7 billion. Despite social issues and a decline in consumer sentiment in 4Q, NAVER's efforts to strengthen its own service competitiveness accelerated the growth of ads and commerce revenue. In addition, structural improvements in business operations contributed to an increase in operating profit by 33.7% Y-o-Y and 3.2% Q-o-Q, to KRW 542 billion. And the operating margin improved by 2.8 percentage points Y-o-Y to 18.8%. For the full year of 2024, operating profit rose 32.9% Y-o-Y to KRW 1.979 billion, with the operating margin improving by 3 percentage points to 18.4%. Adjusted EBITDA, which excludes variables such as stock-based compensation and depreciation and amortization expenses, continued to benefit from the recovery of core businesses such as search platform and the effects of cost efficiency efforts focused on productivity. As a result, 4Q adjusted EBITDA increased by 28.6% Y-o-Y and 6.7% Q-o-Q, reaching KRW 745.9 billion. Adjusted EBITDA margin improved by 3 percentage points Y-o-Y to 25.8%. 2024 annual adjusted EBITDA grew 24.9% Y-o-Y to KRW 2,664.4 billion, with the margin improving by 2.7 percentage points to 24.8%, reflecting acceleration in growth. This quarter, a portion of the onetime settlement payment related to the completion of past service contracts with LY Corp. In 2024 was reflected in the other revenue of both the Search Platform and Cloud segments. Excluding this effect, Q4 revenue increased by 11.4% Y-o-Y and 4.1% Q-o-Q, while the operating margin recorded 17.5%. Next is revenue by each business area. In Q4, Search Platform grew 14.7% Y-o-Y and 6.7% Q-o-Q, to KRW 1,064.7 billion. Despite the domestic advertising market not yet fully recovering, both Search and Display ads recorded double-digit growth, marking the first time in history that quarterly revenue from this segment surpassed KRW 1 trillion. Search ads driven by continued improvements in bidding performance for Power Link and place ads as well as additional expansion into external platforms grew 11% Y-o-Y and 2% Q-o-Q. Display benefited from the expansion of fee-based ads in verticals such as sports, entertainment, blog and cafe and enhanced targeting led to improved conversion metrics, creating a virtuous cycle where advertisers increased their spending. And as a result, Display grew 9.7% Y-o-Y and 9.8% Q-o-Q. For your information, this quarter's other revenue reflects the settlement from LY Corp., as already mentioned, but when that impact is excluded, Search platform grew 11.5% Y-o-Y and 3.8% Q-o-Q. 2024 Annual Search platform continue to expand NAVER's competitive ad products and placements while enhancing targeting capabilities, resulting in a 9.9% Y-o-Y revenue increase to KRW 3,946.2 billion. Commerce revenue was up 17.4% Y-o-Y and 6.9% Q-o-Q, to KRW 775.1 billion. On a full year basis, it increased by 14.8% Y-o-Y to KRW 2,923 billion. Commerce ads saw improvements in shopping search UI in alignment with the launch of the Plus Store as well as the expansion of personalized ads. In addition, AI-based creative optimization and expanded keyword matching capabilities helped advertisers efficiently expose more relevant ads to users, leading to increased ad efficiency and profitability. As a result, commerce ads revenue rebounded strongly, rising 10% Y-o-Y and 10.2% Q-o-Q, contributing significantly to overall commerce revenue growth. Despite the deconsolidation of AMUSE supported by stable growth in Smartstore, including brands and service transactions as well as increased adoption of the brand solution package and guaranteed delivery service, commission and sales revenue grew 23.7% Y-o-Y and 3.4% Q-o-Q. In December, the consumer sentiment index recorded its steepest decline since the COVID-19 pandemic in 2020. And following the airport incident, the travel reservation segment showed weakness, indicating continued challenges in the market environment. Nevertheless, following the launch of the Plus Store in 4Q, NAVER closely monitored user and seller responses, proactively enhancing the shopping experience and responding to year-end shopping demand, and these efforts resulted in meaningful growth. Looking ahead with the launch of a stand-alone Plus Store app next year, NAVER plans to accelerate commerce revenue growth through various product enhancements and expanded solutions. Membership revenue as the average daily number of new subscribers increased rapidly following the partnership with Netflix in November, grew 15.9% Y-o-Y and 16% Q-o-Q. Fintech revenue was up 12.6% Y-o-Y and 4.1% Q-o-Q, to KRW 400.9 billion. TPV driven by organic growth from Smartstore payments and the continuous expansion into external ecosystems grew 18.3% Y-o-Y and 3.7% Q-o-Q, reaching KRW 19.3 trillion. The proportion of non-captive TPV remained at and above 50%, leading overall growth. 2024 annual fintech revenue, supported by the growth in shopping transaction volume and increased payment revenue from third-party ecosystem expansion increased 11.3% compared to previous year to KRW 1,508.4 billion. Content revenue was up 0.2% Y-o-Y and 1.0% Q-o-Q to KRW 467.3 billion. On an annual basis, despite the impact of NAVER Z deconsolidation, content revenue grew 3.7% Y-o-Y to KRW 1,796.4 billion. In Q4, Webtoon revenue based on NAVER's consolidated financials in Korean won grew 6.8% Y-o-Y and 0.9% Q-o-Q. Further details will be provided in Webtoon Entertainment's earnings release scheduled for February 25, local time. Please note that NAVER's consolidated financial results and Webtoon Entertainment's reported figures may differ. Snow continuously impacted by NAVER's deconsolidation and the high base effect from the global success of AI products such as Epic Yearbook in Q4 2023 saw its revenue decrease by 47.8% Y-o-Y, but the Camera segment continues to see a steady increase in paying subscribers of AI features. Cloud revenue was up 41.1% Y-o-Y and 22.8% Q-o-Q, to KRW 177.6 billion. B2B driven by the recognition of NAVER Cloud's revenue and solid growth in paying accounts for LINE Works grew 11.2% Y-o-Y. Other revenue included revenue from Saudi Arabia's Ministry of Municipal Rural Affairs and Housing Digital Twin project and a portion of the LY Group settlement. Excluding these effects, Q4 cloud revenue grew 17% Y-o-Y and 1.9% Q-o-Q. In 2024, annual Cloud revenue reached KRW 563.7 billion due to the full-fledged recognition of NAVER Cloud revenue and global revenue from Saudi Arabia's Ministry of Housing project, revenue was up 26.1% Y-o-Y. And when excluding the impact of the LY Corp. settlement, revenue grew 19.3% Y-o-Y. Next is on expense items. Development and operation expenses, despite the recognition of year-end performance bonuses and expanded stock-based compensation costs remained stable, up 4.2% Y-o-Y as efficient workforce management continued to support cost stability. Partner expenses due to increased commission expenses linked to revenue and the recognition of project costs, including labor expenses following the conclusion of tax service contracts with LY Corp., increased 7.6% Y-o-Y and 8.9% Q-o-Q. Infrastructure costs increased due to higher depreciation costs from the acquisition of new server assets, up 13.1% Y-o-Y and 3.9% Q-o-Q. Marketing expenses was up 25.6% Y-o-Y and 7.3% Q-o-Q, reflecting various promotions aimed at strengthening the competitiveness of commerce, fintech and Content businesses, including promotions for the launch of Plus Store and year-end season campaigns. In the first half of the year, we plan to implement marketing activities in a flexible and strategic manner to coincide with the launch of a stand-alone Plus Store app. Next, let me discuss the P&L by business. Search in combined, search platform and Commerce despite increased shopping promotions and due to revenue mix changes from strong growth in search ads and commerce ads recorded improved profitability Y-o-Y and a similar margin Q-o-Q. As for the fintech segment, despite continued growth in payment service revenue and due to the high base effect from Q3 seasonal peak and increased strategic marketing expenditures for year-end promotions, profit margin declined Q-o-Q. The Content segment recorded a slight increase in losses despite the continued impact of NAVER Z's deconsolidation. The Cloud segment continues to see its losses narrow Y-o-Y and Q-o-Q. And even after excluding the impact of the LY Corp. settlement, losses narrowed Y-o-Y. Q4 consolidated net profit was KRW 444.1 billion, up 48.8% Y-o-Y. However, due to the FX effects on foreign currency translation of bonds, consolidated net profit declined by 16.2% Q-o-Q. On an annual basis, net profit was up 89% Y-o-Y to KRW 1,862.1 billion. Let me now move on to cash flow and shareholder return plans. Free cash flow in Q4, driven by more stable balance sheet management increased by KRW 55.4 billion Y-o-Y and KRW 50.8 billion Q-o-Q, reaching KRW 437.9 billion. Lastly, as part of the special shareholder return program announced last September, we completed the cancellation of treasury shares equivalent to 1.5% of outstanding shares as of November 13, 2024. And in addition, we plan to distribute KRW 168.4 billion in cash dividends, equivalent to 20% of the average consolidated free cash flow of the past 2 years, pending approval at the Annual Shareholders' Meeting in March 2024. For your reference, this year's cash dividend amount is 42% higher than last year's dividend for the 2023 fiscal year. And to allow investors to review the cash dividend amount before making investment decisions, the dividend record date has been set for February 28. With this dividend payout and the cancellation of an additional 1% of existing treasury shares, our 3-year shareholder return plan will come to a close. And accordingly, we plan to establish a new shareholder return plan. The new shareholder return plan will be disclosed to the market within the year. Our goal is to improve predictability for shareholder returns while taking into account NAVER's liquidity, debt ratio and future investment plans. This concludes the overview of NAVER's Q4 financial performance, and we will now receive questions.

[Interpreted] [Operator Instructions] The first question comes from Kiwoom Securities, Jin-Gu Kim.

[Interpreted] My question relates to the company's overview of your AI strategy. Between your LLM of HyperCLOVA X and the LLM of other big techs, what is your priority? The intent of this question is, I would like to understand as to what the possibility and probability is in terms of the strategic collaboration and cooperation with other big techs in terms of technology cooperation and strategic cooperation on the data side as well. Aside from this, I would like to understand as to the level of advancements that you are seeing with regards to your own proprietary model, coupling that with your data. I would like to know as to what the advancement is in terms of reinforced training of these AI models?

[Interpreted] Whilst our peers are really investing into expanding their capabilities in the LLM on a limitless basis, we are focused with our HyperCLOVA X that is to optimally enhance and accelerate the speed and the capabilities that is most visiting NAVER. We have hence been able to continuously train and use the data and continue on with the training of the algorithms and the model, we've been scaling up those efforts over the years. And hence, we were able to enhance the efficiency compared to the cost that we put in. And I can tell you, therefore, the model that NAVER has really yields the highest competitiveness in terms of its Korean language capabilities as well as STEM. And during February, we are planning on updating our flagship model. And before the end of the year, we will be able to drive some performance with respect to multimodality cutting across voice, image and videos. It is our strategy not to disclose the size of the parameters, but I can tell you that unless there are other necessities that actually emerge, we will be sticking to the current position that we have. Recently, quite a bit of ripple has been sent across the market with the launch of DeepSeek. And this is an opportunity for later entrants to really catch up with the forerunners of this industry. We are, hence, really focusing on strengthening and reinforcing our multi-model and reasoning capabilities of our AI models, and we will continue to seek ways for us to further enhance cost efficiency. In regards to certain services where we see high level of usage frequency, we are planning to incorporate various different sizes of AI-based algorithm models to it. We do not yet have a use case where we have directly collaborated and cooperated with an external LLM provider like the global big tech, but we are open to any collaborations going forward. So we will keep to that stance.

[Interpreted] The next question comes from Goldman Sachs, Eric.

[Interpreted] I would like to ask 2 questions. First is on your shopping. After the introduction of NAVER Plus Store, what was the user feedback like? What were some of the positive feedback that you got and some negative where you would need to improve on? And it seems that with the realignment and reshuffling that you've made this time around compared to price comparison, Smartstore has really come forward. I would like to understand as to what user feedback is like with respect to the selection aspect? Second question is on AI. You did provide a quite elaborate answer before, but I would also like to understand what NAVER's thought is in terms of the implication that you see from the launch of DeepSeek? What I mean is, would this change your thought on the speed of AI adoption going forward? Do you think that the adoption speed is going to accelerate in the future? If so, what impact and implication does this have for NAVER's margin?

[Interpreted] Responding to your first question on NAVER Plus Store, with the launch of NAVER Plus Store, we've seen an increase in the usage rate by a highly loyal customer base. And also as we really reinforce the discovery and exploration based UI/UX, we are seeing increases in page view as well as dwell time, the time spent. And so in line with the intention that we had at the very beginning, we are seeing positive user behavior. To give a bit more color, typically, a platform like NAVER where many, many people use the platform on a daily basis, if a certain aspect of usage undergoes certain change, from a short-term perspective, there's quite a bit of instance where there's going to be a churn out from the traffic. But with the launch of Plus Store, we have not had that experience. Our traffic has stayed the same and quite stable, and we consider that to be quite positive. And also in line with the objective that we had with the launch of the NAVER Plus Store, where we wanted people to really have a be able to see the changes in the click-related behavior of the users with the core focus on discovery and exploration. And we are seeing that they do move and they do -- they are responding to different types of benefits and promotions. And today's deals, these are some of the things that we are offering to our user base, and we are seeing a positive move towards the objective that we had initially set. Now having said that, we have only launched this recently, and so we only have limited amount of data. Going forward, we will try to attract and induce these user flow into the so-called discovery scene and discovery layout so that they could familiarize themselves with the overall Smartstore journey as well. And by offering these different services and really leading them on, we are going to be able to attract and -- excuse me, collect and collate more feedback and data. And within the search results, we don't arbitrarily load a certain collection or selection ahead of others. It is all based off of the user feedback and user choice. Depending on the high level of search-related satisfaction that the users have shown if you look at their profile. So the top loaded results are going to be based upon the preference and the selection of the users. So the algorithm is designed in a way that will enable that. And so the result is that the Plus Store collections typically actually are featured ahead of others because that is what the users are choosing and preferring. So the launch of DeepSeek, we view that from a very positive aspect because that is actually in line with our initial thoughts when we were developing HCX on our side. And the thought that went into it is that as a later entrant into this space, based upon relatively smaller amount of cost investment, this will be an avenue for a company like us to actually catch up with the front runners. And I think DeepSeek actually is a testament to that thought as well. So from a strategic perspective, we don't believe that this is going to have any significant impact on our side. It will just be that it is going to accelerate the adoption of AI going forward. From our perspective, it's important that we do not let the gap between the later entrants and the front runners, the gap to widen going forward. And once again, HCX is being continuously being developed so that it could be optimized for the capabilities and features that's required under NAVER. And since we also have our own proprietary model, we will be able to retain flexibility when it comes to usage or the adoption of a third-party LLM. So we will be able to have the choice and option of selecting various different models that have different level of performances and capabilities. And at the end of the day, because NAVER is a company that is providing various different services that is powered by AI and high-quality data that NAVER actually owns, we believe that this will be an opportunity for us to actually speed up the businesses that we have in line with the changes in the environment. And I believe that this also will have a positive impact in terms of cost efficiency gains.

[Interpreted] On the margin question, I would like to answer that question. This is the CFO. As you have also observed the adoption of AI on a global basis is going to expand as we go forward. Some encouraging signals that we have seen is AI overview by Google has expanded. And with the increase in the impression or the loading, if you look at their monetization from the advertisement, they've been able to actually drive that up to the level of the established search. So just as with the emergence of DeepSeek, there's more efforts putting into infra engineering and more efforts putting in to actually enhance the efficiency of inference model in terms of AI briefing features as well as advertisement monetization, we believe that we will be able to elevate that monetization impact to the level of the Power Link ads. And hence, we do not think that this will have a negative impact or the trend will have a negative impact on our margin.

[Interpreted] The next question comes from JPMorgan, Stanley Yang.

[Interpreted] First question relates to the LY Corp. related one-off settlement, which amounts to KRW 60 billion. Does that impact your operating profit? Second question is on your e-commerce. After the Netflix partnership in December, I think all the metrics are quite positive. And so I would like to know as to what impact it had on your Q4 membership revenue? And is the membership revenue trend an upward trend? And what is the spending behavior that you are seeing from these subscribers who come through the NAVER -- excuse me, through the Netflix partnership arrangement? Another question is that if we take a look at the third-party data source, December and January, the overall e-commerce GMV for the NAVER app has actually shown a year-over-year growth. I think that goes to show that your NAVER commerce is much more stronger compared to the past. Does your internal data speak to the same outcome? Third question is with regards to this year, I would assume that there's going to be additional e-commerce-related strategy that will be deployed, and that would obviously entail some cost. What is the margin impact of this?

[Interpreted] Regarding the settlement related to LY Corporation, not the entirety of that amount is going to go to the profit. It's not one-to-one match. There is some cost-related element as well. We tried to incorporate that in the opening presentation. On the margin side, it will have an impact of about 1 percentage point. On commerce question, in Q4, there was a quite positive and meaningful rebound in our e-commerce GMV, and we will continue to endeavor to speed up that trend. And also with regards to the Q4 and answering your question about the membership side, in Q4, some of the drivers were the release of or the launch of NAVER Plus store as well as membership arrangement plus different membership-related benefits that we offer to our users as well as delivery-related benefits. Regarding the question about Netflix partnership, as you know, we've bundled the Netflix as well as on top of that, our NAVER membership. And the result of that was that new sign-up subscribers actually rose quite significantly. And also, if you look at their spending, compared to before the sign-up, the spending has gone up quite significantly as well by margin of about 30%, more than 30%. And another characteristic is that all these subscribers who came through the bundled product, their churn rate is also very low, which goes to show that the impact is not short-lived. It's not temporary. These are people who are willing to stay within this ecosystem over a longer period of time. It is because of this experience going forward, we're also going to try to focus on more such strategic partnerships so that we can grow the base of our members and also have a positive impact on their spending. So our approach for this year is we are going to really leverage the personalization strength that we have against the product database and also make improvements on some of the weaknesses that we have, especially focusing on the delivery aspect and the membership-related benefits so that we may be able to drive robust growth into the future. So based upon all these efforts, the GMV objective and target that we have for our Smartstore is going to be double-digit growth, which will be outperforming the general market growth.

[Interpreted] And with the introduction of NAVER Plus store app, there's going to be quite a bit of marketing and promotion activities as well as more investment into the user benefit offerings as well. But this is not going to mean a big impact on the margin of our commerce business. It will be done within a well-controlled manner. Just to add on the margin-related question, up to last quarter, because of more extended promotion and higher level of benefits that we gave to the users, you would have also been able to check that our commerce margin would have dipped quite slightly. But come this quarter, we were able to recover, regain our footing despite there being more promotions. And this is because, as CEO has previously mentioned, if you look at our shopping search ad, there's been quite a bit of enhancement to the product itself and much more -- higher level of the loading of the advertisement. And that really had an impact because the ad business, of course, yields higher margin and the revenue mix actually went up from this type of product, and that helped us to drive the margin recovery. Going forward, we will continue to look and study how much to invest versus the amount of margin that we need to defend against. But as you know, because there is quite a bit of upselling opportunities that will present itself as well, we will make a -- strike a good balance between the 2. That is our plan.

[Interpreted] We spent about an hour, we would like to close our earnings release today. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]