Naver Corp

KRX:035420

[Interpreted] Good morning. We will now begin NAVER's 2024 Q3 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, investors, good morning. I am Paul Choi from the capital markets office. Thank you for joining NAVER's Q3 2024 Earnings Call.

As always, 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 communication, 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.

[Interpreted] Good morning. I am Soo-yeon Choi, the CEO.

In the third quarter, NAVER not only strengthened its search capabilities based on AI and data but also expanded hyper-personalized services that deliver content tailored to users' interests, continuing the effort to enhance the platform with a balanced focus on search and discovery.

To respond to the recent reshaping of the e-commerce market, we have been carefully preparing various measures to strengthen NAVER's advantages and address its weaknesses. As a first step, we launched the NAVER Plus store at the end of October to enhance the discovery and exploration experience of preference-based products. And it has been well received for its intuitive UI and UX with improved user convenience. We will continue to put effort into advancing our logistics capabilities and enhancing membership benefits to further strengthen our competitiveness. We will also continue to develop NAVER's spatial intelligence technology to discover new drivers of future growth.

NAVER LABS' spatial intelligence technology powered by its differentiated positioning technology was first introduced in Korea through its VR real estate tour service in 3Q. Overseas revenue from providing digital twin solutions for the Saudi ministry of municipal, rural affairs and housing was generated for the first time this quarter. We placed -- we plan to create new business opportunities by integrating on- and off-line experiences such as place maps, real estate and digital twin; and various local and spatial services through the application of generative AI.

Now let us take a closer look at our search platform performance. As for the search platform, in the third quarter, efforts to enhance the platform's competitiveness, including strengthening search capabilities using AI and data and expanding time spent through the introduction of short-form and feed services, have paid off, resulting in double-digit growth for the first time in 10 quarters. In recent years, various generative AI-based search services have evolved from answering questions with trained data to providing responses using the latest information on the web, increasing the importance of securing quality search data as well as AI performance. In response, NAVER is also improving its search performance by expanding the number of indexed documents in its database by 50%, with a focus on enhancing reliability.

In the third quarter, we strengthened the indexing and search of credible data from public institutions, which led to an increase in the number of clicks on relevant sources by more than 30%. And by increasing the visibility of specialized Café content sources, improving image indexing quality and enhancing video search performance, we aim to improve the accuracy of long-tail queries so that it leads to increased traffic. Based on this extensive and up-to-date data, we plan to expand the AI briefing feature to mobile comprehensive search next year to better understand user intent and context to provide direct answers to search queries in a concise summary format.

At last August's TEAM NAVER conference Dan, NAVER introduced its generative AI search Cue:, which began testing on PCs. Since then, the focus has been on improving response speed and quality. The AI has continued to evolve, with internal testing now completed for multimodal features that enable search by image and voice. Just like the AI briefing results that summarize data from trusted sources, we plan to provide in the coming year an immersive experience on mobile enabling users to take action based on search results that align with their purpose.

In addition, NAVER is expanding its feed service to enhance the flow of personalized content discovery, making it easier for users to find and explore tailored content across the platform. Since June, NAVER has been testing sports and entertainment feeds with select users. And as of October 31, these feeds are now fully available. Also, NAVER has introduced the new search feed which connects search results to a variety of content based on real-time user responses, transforming traditional search into a discovery and exploration experience.

In order to secure quality content that enriches users' discovery and exploration experiences within the expanding feed space, we are also introducing various content creator development programs. NAVER blog, which celebrated its 21st anniversary this year, has been -- has seen unique, text-based content become a trending cultural phenomenon, with the proportion of its users between 10 to 30 reaching 64% of the total user base. Recently, through a challenge encouraging users to document their daily lives with text and images, we have secured content on a diverse range of topics. The largest share of content produced has been in place reviews such as travel, restaurants and events, exhibitions, areas where NAVER has strong expertise. And this focus is expected to create synergies with our mapping service in the future.

Through the third batch of clip creators recruited in August, we have been producing an average of 35,000 pieces of content per month, enabling us to secure video content across various topics. Similarly, with the feed maker program launched in October, NAVER selected 700 creators, with a focus on fostering creators to produce high-quality blog content. And the contents gathered through this process are organically recommended and displayed, tailored to individual interests, powered by AI technology, across various NAVER platforms, including home feed, blog search, explore tab and feed. And as a result, the average daily time spent on NAVER mobile main page for Q3 grew by more than 10% Y-o-Y, just like the previous year, demonstrating its competitive strength. Specifically, daily visitors to the home feed have risen steadily since last quarter. And both the number of visits per person and the click conversion rate for content and home feed have also increased significantly since the beginning of the year.

For clip, monthly average daily play count increased by 50% Q-o-Q. And the daily play count per person also grew by 81% year-to-date. Stickers, which were introduced to strengthen the linkage between clip and NAVER's vertical services, have shown high usage rates, with place and shopping tags accounting for 47%. In particular, with place stickers, users were naturally directed to tag locations on clips, leading to further actions like reservations and orders via the maps and pay services. Similarly, for shopping stickers, we observed a virtuous cycle where users transition from product recommendations to the purchase pages.

NAVER is also focused on strengthening the competitiveness of its ad platform. In line with the gradual expansion of its feed service, we are consistently launching highly effective ad products and improving ad efficiency through AI-driven targeting enhancements. Feed ads have proven highly effective, achieving an average click conversion rate more than 5x higher than standard banner ads due to enhanced targeting. In particular, NAVER dynamic ads which use AI to display personalized ads based on user shopping data continue to stage high performance with a CTR over 3x that of other feed ads. As a result, feed ads have been well received by both advertisers and users and are driving an influx of new display advertisers.

NAVER is currently working on enhancing tools that automate ad execution to optimize efficiency within the budget set by advertisers. And as a result, the boundaries between search ads and display ads are expected to gradually blur, so furthermore, NAVER will continue to enhance its AI-based tools for advertisers and introduce compelling products based on advanced targeting to solidify its position as a platform that satisfies both users and advertisers.

Next, I would like to share with you the status of our commerce business. In 3Q, NAVER's total commerce GMV reached KRW 12.5 trillion, up 4.3% Y-o-Y, of which on-platform GMV excluding outlink marketplaces grew by 10% Y-o-Y.

With the recent reshaping of the e-commerce market, there has been a growing preference for trusted platforms, leading to a continued expansion of sellers and brands using NAVER. In the services segment, despite the normalization of the travel bubble post COVID, travel GMV growth has continued. And orders and bookings are performing well, supported by search enhancements and effective response to peak holiday demand.

Our brand-driven expansion of guaranteed delivery is recording strong GMV growth continuing from Q2 to Q3, backed by enhanced user benefits and seller convenience. Since the introduction of free shipping with guaranteed delivery for membership users, the GMV of the service among members have grown by nearly 50%. For sellers using the free exchange and return services, GMV increased by almost 40% compared to before the service was introduced, contributing to increased transaction activity. In addition, for sellers who face challenges in adopting guaranteed delivery, we have supported them by enabling direct delivery from their warehouses and simplifying the contract process to improve convenience. This has led to positive feedback across various categories, including digital home appliances, fresh food and daily necessities, leading to a sharp increase in coverage. Furthermore, we will continue to enhance the overall quality and speed of delivery by introducing Sunday delivery and expanding same-day delivery services.

In the cash -- in the case of Poshmark, growth has slowed due to a sluggish North American C2C market, but it still shows solid traction compared to our competitors. Despite the challenging market environment, we've seen good response to our 1P ads, resulting in increased ad revenue. And we have launched a smart list AI tool powered by Posh Lens, which will make it easier for more sellers to register their products. On October 30, we launched NAVER Plus store, with enhanced product exploration, discovery and hyper-personalized experiences.

NAVER Shopping, which began as a price comparison service in 2003, has grown from an online store platform for SMEs in 2018 to a powerful commerce platform by expanding its capabilities to support D2C for brands in 2020. With the addition of the NAVER Plus store, we aim to continue on with this evolution. For consumers, NAVER will offer an advanced shopping experience based on AI enhancements, providing a new level of shopping experience tailored to individual needs. In addition to NAVER's strength in intent-driven shopping search, the platform will evolve into an intuitive, user-friendly, technology-driven commerce platform that helps consumers easily discover preferred products and receive personalized recommendations, including AI-driven purchase guidance. For sellers, NAVER will support brand analysis, marketing, customer management and price management through data and solutions that only NAVER can provide, transforming itself into a relational commerce platform that makes it easier to attract and engage new, loyal and potential customers.

Furthermore, we plan to enhance benefits for Plus Membership members within the NAVER ecosystem and expand benefits outside the ecosystem as well. Within the NAVER ecosystem, the free shipping and free exchange, return benefits of the guaranteed delivery product, which was -- which were tested for 3 months, starting in August, have shown positive results with increased GMV and higher user satisfaction without significantly impacting profitability. And thus, these benefits were officially introduced in November. We will also expand exclusive offerings for membership customers such as super rewards and special deals to provide personalized benefits tailored to individual preferences. Furthermore, outside of the ecosystem, we plan to expand further by offering powerful contents like Netflix; and endless benefits in offline spaces such as department stores, convenience stores, airports and movie theaters.

By leveraging NAVER's unique strengths, we plan to launch the new NAVER Plus store as a separate app in the first half of next year to further enhance the hyper-personalized shopping experience. We will continue to develop the platform into one that satisfies customers, sellers and partners alike.

Next, allow me to provide an update on our fintech business. In 3Q, NAVER Pay's TPV reached KRW 18.6 trillion, an increase of 22.1% Y-o-Y and 6.2% Q-o-Q. Non-captive TPV, driven by the continued expansion of our third-party ecosystem through the addition of new merchants, grew by 38% Y-o-Y to KRW 9.6 trillion. Off-line TPV grew 78% Y-o-Y to KRW 3.1 trillion, backed by the growth of on-site and order and booking payments.

In the platform business, we are continuously expanding our lineup of loan and insurance comparison services with the launch of rent loans and international travel insurance comparison services. The total volume of the loan comparison service continues to grow with the expansion of offerings, including credit loans, mortgage loans and rent loans. And the cumulative volume for NAVER Pay's home mortgage and rent loan comparison service launched earlier this year has surpassed KRW 3 trillion. Going forward, we plan to further expand the lineup of loan and insurance comparison services and enhance user convenience, allowing financial consumers to compare options quickly with convenience through NAVER Pay, reduce financial costs and enjoy additional benefits.

Now [indiscernible] moving on to Webtoon's third quarter results. In the first full quarter as a public company, Webtoon's Q3 revenue recorded KRW 424 billion, increasing 11.6% Y-o-Y and 10.7% Q-o-Q. On a constant currency basis excluding the consolidated and transferred operations, as reported by Webtoon earlier this morning, revenue grew 13.5% Y-o-Y, continuously strengthening its position as the leading storytelling technology platform.

Breaking it down by segment. Paid content revenue increased 12.7% Y-o-Y, while ARPU grew 14.7% Y-o-Y, representing continued success in driving paying user engagement. Advertising revenue grew 24.3% Y-o-Y, driven by double-digit growth across all regions. And IP adaptation revenue grew 5.3% Y-o-Y. Adjusted EBITDA improved significantly Y-o-Y, representing an adjusted EBITDA margin of 8.3%, as a result of a more efficient marketing spend.

Webtoon has more than 120,000 episodes released daily in more than 150 countries as of the end of 2023, with approximately 170 million monthly average users now. And we remain focused on strengthening our global flywheel powered by our local creator ecosystem, content and IP.

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 Neurocloud and LINE WORKS.

The delivery of Neurocloud equipped with HyperCLOVA X continued to progress smoothly in the third quarter. And we expect the -- we expect to finalize discussions on its adoption with companies that have signed MOU, such as Korea Hydro & Nuclear Power, by the end of the year. For LINE WORKS, number of paid IDs grew by 13% Y-o-Y, leading to a 34% increase in revenue Y-o-Y. Going forward, we plan to expand our product lineup with diverse features to attract more customers and increase the number of paid accounts.

In the case of NAVER LABS' digital twin technology developed for future growth, the revenue from the project to build a digital twin platform with Saudi Arabia's Ministry of Municipal and Rural Affairs & Housing was reflected for the first time this quarter ever since signing the contract in July, confirming that NAVER's R&D for the future is leading to overseas monetization. Though still in its early stages, we see a wide range of opportunities in Saudi Arabia not only for the digital twin business but also for super apps, AI models and data center development. Building on this foundation, we will continue to explore other global business opportunities.

In Korea, we will build on NAVER LABS' competitive positioning technology, which forms the foundation of spatial AI, to showcase differentiated features across NAVER's diverse services, including places, maps and real estate. For example, in Q3, we launched the real estate VR property and complex tour service with NAVER Financial as an AI-powered 3D digital twin solution that recreates real-world spaces in detail, including the form and texture. Initially applied to 50 properties and 5 large apartment complexes in Seoul and the metropolitan area, this service allows users to explore property listings online with accuracy and convenience. We will continue to focus on creating immersive experiences across NAVER's various local and space-related platforms using spatial AI technology to provide realistic spatial and real-time place information.

On November 11 and 12, NAVER's second TEAM NAVER conference DAN will be held. In this rapidly evolving AI era, NAVER, being the only firm in the world with a business model that encompasses search, commerce, payments and content, will be sharing more details on how it leverages its technological foundation to create new services and business opportunities, evolving into an even more valuable platform. And we ask for your interest and support in the event.

Next, CFO Nam-Sun Kim will walk you through the financial performance for the quarter.

[Interpreted] Good morning. I am Kim Nam-Sun or Nam-Sun Kim, the CFO.

Allow me to present the financial results for 3Q.

In Q3, NAVER's revenue, driven by accelerated growth in search platform and solid growth across all businesses, including commerce and fintech, increased by 11.1% Y-o-Y and 4% Q-o-Q to KRW 2.7156 trillion. Operating profit continued its upward trend for the sixth consecutive quarter, with adjusted EBITDA showing growth for 8 straight quarters. Notably, this quarter's operating profit achieved an all-time high of KRW 525.3 billion, up 38.2% Y-o-Y and 11.1% Q-o-Q, thanks to the efforts focused on accelerating high-margin business growth and enhancing productivity. Operating margin also rose by 3.8 percentage points Y-o-Y, reaching 19.3%.

Adjusted EBITDA, which excludes variables such as stock-based compensation and depreciation and amortization expenses, increased by 27% Y-o-Y and 9.5% Q-o-Q to KRW 699.1 billion. EBITDA margin improved by 3.2 percentage points Y-o-Y to 25.7%. It's particularly telling that operating profit grew by nearly 60% compared to 3Q 2022, 2 years ago. The structural improvements made to the business over the past 2 years have been successful proving once again that revenue and absolute profit can grow in tandem.

Next, let me discuss revenue by each business area.

In Q3, the search platform grew by 11% Y-o-Y and 2% Q-o-Q, recording KRW 997.7 billion. This is an encouraging achievement marking a return to double-digit growth for the first time in 10 quarters since Q1 of 2022 when the company benefited from pandemic-related tailwinds.

Search ad grew 9.5% Y-o-Y and 3% Q-o-Q, driven by ongoing product improvements in Power Link, brand search and the introduction of bidding for place ads as well as the expansion of external media offerings. Display grew 11% Y-o-Y, with steady expansion and feed placements and the sale of highly efficient feed ads enhanced with precise targeting technology, but declined 2.3% Q-o-Q due to the traditional off season such as the summer holidays and Chuseok.

Commerce revenue reached KRW 725.4 billion, up 12% Y-o-Y and 0.9% Q-o-Q. Of this amount, commission and sales revenue grew by 24.6% Y-o-Y and 2.2% Q-o-Q, thanks to strategic collaborations with brands; enhanced user benefits; and improvements in delivery quality resulting in increases in GMV for Smart Store, travel and reservation services, bringing about higher usage of brand solution packages and the guaranteed delivery.

Membership revenue increased by 5.1% Y-o-Y, driven by strengthened benefits for users leading to growth in both members and active users. However, it was down by 2.6% Q-o-Q due to the temporary impact of changes in accounting treatment related to some digital content.

Fintech revenue stood at KRW 385.1 billion, up 13% Y-o-Y and 4.5% Q-o-Q. TPV, driven by the ongoing expansion of our third-party ecosystem, was up 22.1% Y-o-Y at 6.2% Q-o-Q, recording KRW 18.6 trillion, with the proportion of non-captive TPV continuing to expand to 51.3%, leading the growth, while off-line TPV grew 78% Y-o-Y, backed by the high growth of order and reservation services and on-site payments.

Content revenue was up 6.4% Y-o-Y and 10.2% Q-o-Q to KRW 462.8 billion. In Q3, Webtoon, with a record-high paid content revenue and a sharp increase in ad revenue in Japan, drove overall revenue growth with an increase of 11.6% Y-o-Y and 10.7% Q-o-Q. For your information: On a constant currency basis excluding deconsolidated and transferred operations, Webtoon global revenue grew by 13.5% Y-o-Y.

SNOW's revenue decreased by 46.5% Y-o-Y due to the impact of NAVER Z's deconsolidation being reflected, but the camera segment continues to see a steady increase in paying subscribers of AI features.

Cloud revenue increased 17% Y-o-Y and 16.1% Q-o-Q to KRW 144.6 billion. B2B grew by 11.4% Y-o-Y, reflecting continued robust growth in paying accounts for LINE WORKS and the recognition of Neurocloud's revenue. Also, revenue from the digital twin project with Saudi Arabia's ministry of municipal, rural affairs and housing announced last quarter was recognized for the first time, contributing to the overall growth in other revenue, both Y-o-Y and Q-o-Q.

Next is on expense items. Development and operation expenses remained stable, up 4% Y-o-Y due to the restructuring of the tech organization and efficient staffing. Partner expenses rose by 5.8% Y-o-Y and 2.3% Q-o-Q due to increased payment fees in fintech and Webtoon businesses. And infrastructure expenses grew 13.2% Y-o-Y, driven by increased depreciation costs from the acquisition of new server assets, maintaining a stable ratio of approximately 7% of operating revenue.

Marketing expenses grew by 7% Y-o-Y and 13.8% Q-o-Q. And as was mentioned last quarter, we expanded promotions in areas such as commerce where we determined that strengthening competitiveness was necessary. We are planning strategic and flexible execution to provide fundamental value to build a solid cohort.

Next, let me discuss the P&L by business. First, in combined search platform and commerce, the accelerated growth of search and advertising offset the increased spending on commerce promotions, resulting in improved profitability Y-o-Y and Q-o-Q. In the fintech segment, while payment revenue continued to grow, profitability declined slightly Y-o-Y and Q-o-Q due to the expanded promotions related to financial products and on-site payments.

In the contents segment, losses were narrowed as a result of revenue growth driven by paid content. And ads in Japan, along with the continued impact coming from the deconsolidation of NAVER Z, led to narrowing deficits. Lastly, for the cloud segment, losses were narrowed, driven by higher revenue from LINE WORKS and AI.

Consolidated net profit for 3Q grew 19.5% (sic) [ 48.8% ] Y-o-Y and 59.6% Q-o-Q to KRW 530.1 billion, reflecting the impact of bond translation gains and losses due to fluctuations in the USD exchange rate.

Let me now move on to cash flow and balance sheet. Free cash flow in Q3, driven by more stable balance sheet management, increased by KRW 223.7 billion Y-o-Y and KRW 141.9 billion Q-o-Q to KRW 387.1 billion. Efforts to liquidate noncore assets over the past 2 years continued in 3Q, successfully executing over KRW 1 trillion in cumulative asset liquidations.

NAVER's consolidated adjusted debt-to-EBITDA improved from 1.9x at the end of Q3 2023 to 1.6x as of the end of Q3 of 2024, following the receipt of approximately KRW 800 billion in dividends from Japan's A Holdings. In particular, I would like to emphasize that, despite the debt-to-EBITDA ratio being as high as 2.6x at the beginning of 2023, NAVER was able to recover from a net debt position to a net cash position through more rigorous and strategic balance sheet management and improved profitability from its core businesses. As a result, asset and capital efficiency, in other words, ROA and ROE, have been steadily improving. And we expect to be able to provide higher investment returns to our shareholders through wiser capital allocation and business operations going forward.

Lastly is an update on the recent special shareholder return program. In order to strongly enhance shareholder value, NAVER announced a special shareholder return program involving share buyback and cancellation of its treasury shares in an amount equivalent to half of the KRW 809.1 billion in special and regular dividends coming from the participation in the public tender offer for LY Corp.'s shares of A holding at the end of September. Accordingly, from October 2 to 25, we successfully acquired approximately KRW 405.1 billion worth of treasury stock, representing 1.5% of the total issued shares. And the acquired shares will be fully canceled as of November 13.

This concludes the overview of NAVER's third quarter financial performance, and we'll now receive questions.

[Interpreted] [Operator Instructions] Our first question comes from the line of Eric Cha with Goldman Sachs.

[Interpreted] Before I ask my question, congratulations on good earnings this quarter. I have 2 questions. The first one relates to the reacceleration of the growth that we see from your search platform business. You've already explained this, to the key drivers behind this growth. I would like to ask whether you think that this impact and this growth trend is sustainable going into the future and what your projections are for the fourth quarter.

Second question relates to your commerce business. You've talked about your NAVER Plus store and how that will transform the user behavior. And we'd like to understand as to the feedback that you're getting from the users and what impact it will have in Q4. And you also mentioned that you will be making this into a stand-alone application next year. How would you minimize this impact of this separate application on your search business? And what are your plans to migrate the shopping users from your search platform to the shopping platform?

[Interpreted] Regarding the search platform question. You were asking about the outlook going forward for the second half of the year. Currently the macro environment and the overall market outlook is quite uncertain, so we may not be able to be completely certain about what will happen going forward, but if you look at the third quarter and the search platform growth that we were able to achieve: This was driven by the competitiveness that we have internally with respect to our search platform business. And therefore, we believe that, going forward, there is more potential for us to further grow and trigger growth in our search platform business. And also we will be harnessing the AI technology and adopting that to the overall search platform business. And because there were areas where we were unable in the past to respond to various different types of queries, well, we are now packaging that into a -- from a business model perspective. And we are expanding the business coverage within that platform.

We're also constantly enhancing the high-performance ad capabilities even with respect to the third-party media channels as well. So within our search and within the service scene, we are expanding on the utilization and the usage of these different high level of targeting capabilities and technologies, which we are using to further drive up advertisement efficiency and also release new types of product and further scale up the tools that we can provide so that we may be able to drive further growth.

Responding to your question about our NAVER Plus store, the commerce app. Basically we've been able to provide seamless experience, seamless shopping experience, by coupling that with the NAVER platform. We're connecting that to the -- our small stores, further improving the convenience of the shopping consumers on our platform. And we believe that -- and it is too early at this point to provide you with what the metrics are telling us in terms of the impact that NAVER Plus store has, but we are seeing signs that this has a positive impact in terms of the users' experience, the level of satisfaction and the impact on the uptrend in the GMV.

We, NAVER, have strength in providing search results that is based off of the intent of the users. We -- based upon that understanding, we are able to provide more customized and personalized outcomes to the users of our platform and provide them with a personalized product and recommendations that best befit and match up with the user's taste. We are also planning to add a fun factor as well as enhanced usefulness by providing the NAVER Plus store to our user base. And I believe that, by organically coupling this with what NAVER is already providing, we will be able to increase the absolute size of the business that we see. I say that because we already have know-how that is built within the company. And I believe that we will be able to further leverage off of -- by creating additional synergies with the existing businesses, so it will, at the end of the day, help us further grow the entire scale of the business.

As we've mentioned, we've introduced NAVER Plus store, coupling that with the NAVER app on the October 30. We are going through collecting different feedback and different metrics from this. And we will make the final decision with respect to making NAVER Plus store into a separate application, a stand-alone application. And with that decision, we will also be able to fine-tune our marketing plan and coming up with the most effective way for us to migrate our search platform users to the application. And after we go through all of those planning phase, then we will come to you with the launch of the product.

[Foreign Language] Our next question comes from the line of Stanley Yang with JPMorgan.

[Interpreted] My question relates to your arrangement with Netflix, in terms of that membership partnership. When will that start? And also what impact would that have on your overall e-commerce growth? I would presume that there will be quite an influx of users on to your membership program. I do not know as to the actual number of your active users, but I would presume that it will have an impact on further growing that base, so I would like to understand as to whether you project that these new members that come in will also be transitioning into the buyers of your e-commerce -- on your e-commerce platform. And what impact would that have on your GMV growth? And also can you share with us the details of the revenue-sharing structure or the commissions that you will be paying? And from a short-term perspective as well as long term, what is the margin impact?

[Interpreted] So please understand that we won't be able to disclose very detailed terms and conditions of the arrangement with Netflix, but the -- I can tell you that the terms are not different to our previous sourcing arrangements with other companies like TVING and other entities. So if you look at the content sourcing cost, I can tell you that it is not bigger than the monthly membership fee that we would be taking. This is in light of our past membership arrangements that we had with other entities like TVING, so I can tell you that the [ margin ] impact is not going to be any meaningfully different from our past practices. So it will be about at the same level.

And Stanley, you also asked about what outcome or impact we are looking forward to with these types of engagement. It's not different from what other global companies, the global companies of commerce platforms would expect out of such arrangement. It eventually would have to do with the retention of the user base, the stickiness as well as the triggering of repeat purchases from the members, so we are looking forward to healthy user activity-related metrics. And we expect that this will have positive impact on our commerce business.

[Foreign Language] Our next question comes from Dong Hwan Oh with Samsung Securities.

[Interpreted] I have 2 questions that I would like to ask. I think that, with the introduction of your home feed form and clip (sic) [ and short-form clip ], the -- and by providing a more personalized content -- I personally spend more time on NAVER platform, so would like to know what your -- what the specific metrics are in terms of the amount of traffic that you've seen, the upward trend that is and also the advertisement revenue impact. Second question is that companies like Google have fully incorporated Gemini into -- the AI engine, into the Google search. I would like to know as to when NAVER will be full-fledgedly applying your HyperCLOVA X to NAVER search. When would that be? And what is the expected increase in expense?

[Interpreted] So you asked about the impact that we are seeing from home feed and clip. And yes, they are driving the -- all of the metrics quite rapidly upwards. The users are also growing. The traffic is growing as well. And as you have also mentioned, with our NAVER main, we are seeing year-over-year growth of time spent by our users by, on average, about 10% growth. And this is all driven thanks to the more inventory and basically more space where we are able to expose off and implement performance-based advertisement. And it is from also in that aspect that home feed and clip is making big contribution. So based off of many different metrics, we see that, on an average, daily clip play count has been up by about 50%. And also the number of count per person on a daily basis also has gone up, around by 80%. So we are seeing improvements, increases in different metrics.

Regarding the harnessing of our generative AI technology. As you know, our initiative first started with Cue:, the search engine. And we are in the process of fine-tuning the strategies that we would implement. We have plans next year to first introduce AI briefing on our mobile platform, and similar to what our competitors are doing, we have a solid strategy in place. And because, on the short-tail head side, NAVER already has strength there, some of the weaknesses that we see where there could be some improvements is on the long-tail side of it, basically long-tail based queries and also searches based off of the foreign language. So those are aspects that we will be bringing about an enhancement. Regarding the impact in terms of the expense, we think that it will be limited, but admittedly, there would be some cost impact.

[Foreign Language] Our next question comes from the line of Jin-Gu Kim with Kiwoom Securities.

[Interpreted] I want to ask you 2 question. For the organic, I see that there will be an -- there is an organic growth for your search platform business. And I do see that there is still some potential for you to trigger further growth for your search platform business next year. So if you could tell us and give us what your outlook is as we go into the future.

Second question is on your commerce business. believe that you would need to retrigger the growth for your GMV. I would like to know as to what your strategic priorities are in order to make that possible and if you have also other plans which you haven't yet mentioned that will help that -- help with that growth. That would also be appreciated. And your commerce advertisement revenue is still quite low. Do you also have plans to lead a rebound in that measure?

[Interpreted] It is very difficult for us to actually predict what's going to happen in the ad market, very difficult for us to know the forecast of the advertisement market because there's a lot of uncertainties that are embedded in this market. Now having said that, if you look at the advertisement market, the segment that's actually growing quite rapidly is in the areas of performance ad and in-feed advertisement. Actually we are expecting about 21% growth as we close this year. And this is the very domain that we as a company are focusing on and where we are driving performance and good results from. And compared to our peers, we believe that our growth rate is more elevated. It's higher. And I think, going forward, we also have more potential for us to trigger that additional growth. And also, from the product planning side, we are planning to expand the feed inventory and also increase on the scene and the areas and also further trigger time spent by the users and also incorporate the use of AI technology to further scale up our targeting capabilities and to improve on the bidding process. And we think that, through these efforts, we will be able to acquire and onboard new advertisers; and we'll be able to bring about meaningful growth.

Regarding your question on our strategy for further bringing about a rebound in our shopping GMV. As we've mentioned during the presentation, we believe that the e-commerce market backdrop is being reshaped. And after the pandemic, there's been an higher interest rate environment as well as a bit of a difficulty that really suppressed the growth rate in the domestic market. And some of the companies were pushed to the verge of bankruptcy and default, and that had an impact on lowering the market growth rate as well. NAVER Shopping: Basically in terms of the search domain as well as through the Smart Stores, we were able to bring about a good and robust growth. However, in some other segments, compared to our peers, especially in the daily necessity segment, the growth was limited. We -- and we admittedly understand that. There are areas where NAVER has very strong strength in, but also compared to our peers, we do have certain weaknesses. And in those areas, we are very much focused on enhancing the competitiveness.

So the area that we need to work on is further increasing the repeat purchase rate. In order to do that, we will be strengthening our logistical -- logistics base as well as providing better benefits and more rewards through the membership program. And some of the examples that I can cite is Sunday delivery and guaranteed delivery as well as free shipping and free returns and exchanges. On top of that, we will make more strategic investment, especially very aggressively in terms of reinforcing the logistical capability that we have. And in the near future, we will be able to come back to you with more details on that. Also there's concern that -- because we've seen some decline in the price comparison traffic, which was considered to be our key capabilities, we want to be able to further enhance the experience there and improve on the accessibility. And that is in line with our launch of, at the end of October, NAVER Plus store, providing more personalized information as well as directly connecting the purchasers and the -- or the consumers with the sellers and making these consumers more frequent visitors to a certain vendor.

So those aspects are some of the endeavors that we're putting in so that we can improve on the weakness that we have. And also, when the time comes, we will be able to communicate to you more detailed and fine-tuned strategies with regards to the benefits that we provide under our membership program and also ways for us to strengthen our weakness that -- currently that we have on the grocery side.

[Interpreted] Also to add on top of that, I just want to highlight the fact that, if you look at the display ad platform and the positioning that they wield on the global environment that has a focus on the search aspect, they still enjoy a very solid and robust footing. And NAVER, I can tell you, in terms of that positioning, enjoys that privilege, so from a search platform outlook perspective, we are planning, at least up until next year, to maintain this trend of acceleration.

So I want to make sure that you do not misunderstand that we are just planning to give out more benefits and rewards. And that may erode our margin. No, that is not our approach. What we were trying to say is that NAVER, in the past, was mostly just a very passive marketplace providing price comparison features. Although we may not go fully -- we may not go the direction of -- some of our competitors are taking on to a fully managed model, we are going to increase the level of engagement, and level of involvement, that is, so that we may be -- more actively be able to provide that consumer value. So I think that was what was being alluded to when our CEO was responding to your question. And second aspect is that, up until this point, commerce ad wasn't one of our priorities. We were focused more on enhancing the usability of the commerce service per se, but NAVER is at a very unique positioning whereas it could truly become a retail media platform supported by this commerce ad as a very important pillar, so what I'm trying to tell you is that there is quite a bit of upside potential when you think about the commerce ad pillar.

[Foreign Language] We will now take our last question from the line of Junhyun Kim with HSBC.

[Interpreted] Just have one question I would like to ask. There was a significant improvement on a quarterly margin basis. And since first quarter of '23, that margin trajectory was upward. And it was expansionary. We would like to know as to what was the key lever behind this quarter's impact or earnings. Was it the reduction in costs or the leverage impact that you're enjoying from higher level of margin? And also can you provide us with what -- with us as to what your margin outlook is? Because you've already achieved more than the guidance that you have guided us at the beginning of the year.

[Interpreted] Just to clarify the improvement in margin that we are seeing. Actually, if you go back to the previous quarter, when you take out the listing-related costs for our Webtoon business, the margin actually was higher previous quarter, so I can tell you right on that it is not due to cost reduction, nor operating leverage. As per our disclosure, basically if you look at our core businesses, the expenses and the cost that has been put in has actually gone up quite significantly. So in terms of CapEx investment, aside from the construction-related investment, our CapEx into equipment and machinery went up by 35%, which is 3x the revenue growth level. And looking at the core business of commerce and payment, including the marketing and promotional costs, that budget actually went up by 20%, so more than the revenue, so the margin improvement that you're seeing is structural.

Over the past couple of years, the management team has focused on reallocating the budget, moving it away from unprofitable growth to profitable growth, investing it into our core business where more profit can be generated. And the decision by the headquarter office to list and go public with Webtoon basically is because of that very reason. We wanted to internalize the motivation behind the profitable growth of this business. And also we realigned the portfolio from our SNOW business, which was deficit making. And also for -- if you look at this quarter, because the marketing spend had gone up for the shopping business, that had pushed down on the profitability slightly, but going forward, as we are able to generate more revenue from our search ad platform above and beyond the spending that is required in terms of labor cost, et cetera, then we believe that there will be greater opportunity for us to benefit from operating leverage going forward.

And with the resources that we secure, we will be making reinvestments into the commerce business, thereby providing more and highly enhanced value offerings to our consumer base. So these types of investments into the -- with this type of an approach, it will help us solidify our business model underpinned by margin and profitability.

[Interpreted] Thank you. This brings us to the end of NAVER's third quarter 2024 earnings release. Investors and analysts, thank you for joining us. And we look forward to your continued support.

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