AI Ad Monetization Begins, Target Price Adjusted to 270,000 KRW

Overview

This report provides an analysis of Naver Corp's first-quarter earnings. UBS believes the key focus is the early evidence of AI monetization; management noted that AI contributed to over 50% of ad revenue growth. Although the target price was slightly adjusted from 290,000 KRW to 270,000 KRW due to uncertainties in short-term cost investment and execution strength, given its cross-platform integration advantages and clear AI monetization roadmap, the institution maintains a Buy rating.

Core views

AI Monetization Showing Early Results: Naver's core differentiating advantage lies in the cross-platform integration of search, e-commerce, and payments, enabling it to convert user intent directly into transactions. Q1 data shows AI has significantly driven ad revenue growth, with a contribution rate exceeding 50%. As Generative AI (GenAI) ads advance, market focus shifts to their specific monetization capabilities. Generative AI Ads Progressing Smoothly: Naver plans to test GenAI ads combining shopping and local services in AI Briefing during Q2 and achieve full monetization in Q3. Early data is encouraging: the click-through rate (CTR) for follow-up queries in AI Briefing is over 2.5 times higher than standard search recommendations, long-tail query volume grew more than 2.5 times year-over-year, and follow-up query clicks increased by approximately 10 times since launch. Internal data shows that ads integrated with payment and reservation infrastructure can nearly double conversion rates. E-commerce Momentum Strengthens, but Requires Continued Investment: Driven by the launch of the Plus Store app, e-commerce performance was strong, with SmartStore GMV growing 14% year-over-year (+10% in 2025). The app's purchase conversion rate is 84% higher than the web version, user dwell time doubled, and repeat customer quarter-over-quarter increased by 23%. Additionally, the AI Shopping Agent launched in February has higher reuse rates and conversion rates compared to traditional shopping search. The company reaffirmed its goal of next-day delivery coverage exceeding 50% within three years and plans to offer free shipping/refund services for Plus members in the second half. Sellers adopting N-Delivery saw GMV growth about 4 percentage points higher than non-adopters, highlighting the impact of fulfillment improvements. However, these initiatives also mean continued investment in near-term costs. Valuation Adjustment Reflects Short-term Concerns: Based on Q1 results, UBS lowered 2026/2027 EPS forecasts by 6%/2% respectively. Considering potential AI execution uncertainties and the continuous cost investment that may pressure margins, investors may remain cautious in the short term. Therefore, the target price was reduced from 290,000 KRW to 270,000 KRW, but still based on 20x 2026 expected PE (multiple unchanged); the current share price corresponds to approximately 16x 2026 expected PE, lower than the historical average of 20x.

Analysis framework

UBS's analysis logic mainly revolves around the theme of "AI technology implementation translating into financial performance." First, by breaking down the drivers of ad revenue growth, quantifying AI's contribution (>50%), verifying the effectiveness of technology investment. Second, by tracking key operational metrics of GenAI ads (such as CTR, long-tail query growth, multiple changes in click volume) to predict future revenue elasticity. In the e-commerce sector, a combination of "volume-price breakdown" and "user behavior analysis" is adopted; not only focusing on GMV growth rate but also deeply analyzing conversion rate improvements and user stickiness changes brought by the Plus Store app, while weighing the dual impact of promotional strategies like free shipping on costs and take-rates. Finally, at the valuation level, relative valuation methods (PE) are adopted; acknowledging long-term AI potential while lowering short-term EPS forecasts to reflect the risk of margin compression due to rising infrastructure costs, thereby deriving a more cautious target price.

Methodology notes

• Industry/Industrial Analysis FrameworkVolume-Price Breakdown

  Volume-Price Breakdown

  When analyzing e-commerce business, the research report not only looks at total GMV growth but breaks down conversion rates (value/efficiency dimension) and user duration/repeat customers (volume/stickiness dimension) changes to judge growth quality.

• Valuation MethodPE/PEG valuation

  PE/PEG Valuation

  The research report uses Price-to-Earnings (PE) as the core valuation anchor, referencing historical average valuation levels (20x) and adjusting with current earnings forecasts to determine the target price, which is a common relative valuation method for growth technology companies.

• Event Gaming and Behavioral FinanceExpectation Gap/Expectation Management

  Expectation Gap/Expectation Management

  The report points out that the market debate focus is shifting from "whether there is AI" to "how AI is monetized," and reminds investors that they may stand aside in the short term due to execution uncertainty, reflecting an understanding of market expectation rhythm and emotional changes.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Naver Corp (035420.KS)

  Direct beneficiary target, core carrier of AI technology implementation and e-commerce growth

  Strengths

  Strong cross-platform integration capability (Search+E-commerce+Payment), impressive early AI monetization data, accelerating e-commerce GMV growth

  Weaknesses

  Rising infrastructure costs may temporarily suppress margins, free shipping and other strategies increase spending

  Risks

  Government regulation, economic deterioration leading to reduced ad spending, intensified competition, overseas business M&A risk

Key data

• Contribution of AI to Ad Revenue Growth>50%Q1 data shows AI has become the main driver of ad growth
• Increase in Follow-up Query CTR for Generative AI Ads>2.5xFollow-up query CTR in AI Briefing is higher than standard search recommendations
• SmartStore GMV YoY Growth Rate+14%Accelerated compared to +10% in 2025, showing enhanced e-commerce momentum
• Plus Store App Purchase Conversion Rate Improvement+84%App side purchase conversion efficiency significantly improved compared to web side
• 2026/2027 EPS Forecast Adjustment-6% / -2%Reflects model correction after Q1 results
• Target Price270,000 KRWPreviously 290,000 KRW, based on 20x 2026 Expected PE

Impact & implications

The research report believes that Naver's positioning at the application layer of AI is strengthening, and its cross-platform integration capabilities help convert technical advantages into actual commercial monetization. Although short-term infrastructure cost investment may suppress margins, causing stock price volatility or investor caution, the long-term monetization roadmap is constructive. For the industry, Naver's AI ad practice may become a case for other platforms to reference, especially on how to combine generative content with transaction scenarios.

Risks

• Changes in government regulatory policies
• Corporate ad spending reduction due to economic deterioration
• Intensified competition brought by emerging successful internet services
• Large-scale equity sales of existing businesses to third parties
• Major M&A activities, especially those involving overseas businesses
• Intense competition between global and domestic competitors in mobile businesses, potentially compressing margins

What to watch

• Specific impact of GenAI ads on revenue in the second half of the year
• Sustainability of ad growth beyond optimization effects
• Margin trajectory under the background of rising infrastructure costs
• Whether recently improved e-commerce momentum can continue after free shipping is launched in the second half of the year
• Progress in fintech and digital asset strategies