2Q Revenue Met Expectations, but Cost Investments Dragged on Profit; AI Factory Returns Remain in Question

Overview

This report reviews Naver Corp's 2Q 2026 results. The company's revenue was broadly in line with market expectations, but growth in marketing, labor, and partner costs led operating profit to fall meaningfully short of expectations. Services, e-commerce, and parts of the global business maintained relatively rapid growth, and user and advertising metrics for artificial intelligence products also improved; meanwhile, management expects growth investments to continue in 2H 2026, leaving margins under downward pressure. AI Factory plans to operate data centers and generate computing power services through multiple special purpose entities. Brookfield may become a major investor, while Naver would consolidate related revenue with relatively low capital investment, but revenue sharing and investor return requirements may limit the ultimate level of profitability.

Core views

At the earnings level, 2Q revenue grew 16.3% YoY to KRW 3.389 trillion, while operating profit declined 0.2% YoY to KRW 520 billion, 8.1% below market expectations. Advertising growth slowed to 7.5%, but service revenue grew 31.3%, and e-commerce transaction metrics also maintained strong momentum. On the cost side, marketing expenses grew 25.4% YoY, partner costs grew 22.0%, and labor costs grew 15.2%, driving operating margin down to 15.4% from 17.9% in the same period last year. Strategically, AI Tab has gained 10 million monthly active users, and initial commercialization indicators are positive; AI Factory's 200MW capacity target and special purpose entity structure are clearer, but its sustainable margin and the minimum return requirements of capital partners still lack sufficient validation.

Analysis framework

The report conducts variance analysis by combining quarterly actual results, Morgan Stanley forecasts, and FactSet market consensus expectations, and evaluates margin changes through segment growth and expense breakdowns; valuation uses a sum-of-the-parts approach, separately assessing the core business, Naver Financial, Webtoons, and A-Holdings.

Methodology notes

• Valuation frameworkSum-of-the-parts valuation method

  Separately estimate the equity value of each major business and then add them together.

  The core business is valued at 18 times 2026 core net operating profit after tax; Naver Financial uses a 3.5 times price-to-book ratio; Webtoons is valued at market value less a 30% holding company discount; A-Holdings is valued at market value less a 50% holding company discount.

• Earnings comparisonActual versus consensus variance analysis

  Compare quarterly actual results with institutional forecasts and market consensus expectations.

  The report focuses on YoY, QoQ, and expectation variances in revenue, operating profit, operating margin, and expense items to identify the main sources of earnings deviations.

• Financial forecastingMorgan Stanley ModelWare

  Morgan Stanley's proprietary financial forecasting framework.

  Unless otherwise stated, the forecast metrics in the report are based on the ModelWare framework; market consensus data are provided by Refinitiv Estimates and FactSet.

Asset mapping & comparison

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

• Naver Corp (035420.KS)

  The core research subject of the report, with an Equal-weight rating maintained.

  Strengths

  Services, e-commerce, and C2C businesses are growing relatively quickly, AI Tab user scale is expanding, artificial intelligence advertising metrics have initially improved, and the company has a diversified internet business foundation.

  Weaknesses

  Advertising growth has slowed, marketing, labor, and partner costs are growing rapidly, and operating margin remains under continuous pressure.

  Comparison

  Revenue was slightly above market consensus expectations, but operating profit was 8.1% below; the target price implies approximately 19% upside versus the reference share price.

  Risks

  Capital and operating costs for artificial intelligence investment may be higher than expected, the AI Factory profit model has not yet been validated, and risks from e-commerce competition and the impact of artificial intelligence on the advertising business remain.

• BROOKFIELD CORP (BN)

  May become a major investor in the special purpose entities related to AI Factory.

  Strengths

  Participation by external capital could reduce the capital investment required for Naver to directly build data centers.

  Weaknesses

  The minimum internal rate of return required by investors may compress the economic benefits Naver obtains from computing power services.

  Comparison

  The report does not provide an independent valuation or rating for BROOKFIELD CORP, and only discusses its potential role in AI Factory's capital structure.

  Risks

  Final investment terms, profit distribution, and project execution arrangements have not yet been clarified.

Key data

• 2Q 2026 revenueKRW 3.389 trillionUp 16.3% YoY and 0.5% above market consensus expectations.
• 2Q 2026 operating profitKRW 520 billionDown 0.2% YoY and 8.1% below market consensus expectations.
• Operating margin15.4%17.9% in the same period last year and 16.7% in 1Q 2026.
• Advertising revenue growthUp 7.5% YoYAdvertising growth slowed somewhat.
• Service revenue growthUp 31.3% YoYThe services business continued to maintain strong growth momentum.
• SmartStore GMV growthUp 16% YoYThe Naver Plus Store app grew 35% YoY.
• AI Tab monthly active users10 millionAdvertising click-through rates and conversion rates showed positive trends.
• AI Factory capacity target200MW by 2028The company has secured the corresponding data center capacity and plans to operate it through multiple special purpose entities.
• Target priceKRW 270,000Approximately 19% upside versus the KRW 226,000 reference closing price.
• Stock ratingEqual-weightThe rating is maintained unchanged, with the usual applicable evaluation period of 12 to 18 months.

Impact & implications

In the short term, progress in services, e-commerce, and artificial intelligence products can support revenue growth, but marketing promotions, seller migration, payments and Webtoons investments, as well as continued increases in artificial intelligence spending, may cause margins to decline further in 2H 2026. In the medium to long term, if AI Factory can secure substantive customer contracts and expand computing power service revenue with limited capital investment, it may become a new valuation driver; however, the profit distribution of special purpose entities, return requirements from investors such as Brookfield, and data center operating costs may make management's proposed margin near 20% difficult to achieve.

Risks

• Growth investments may continue in 2H 2026, and marketing, labor, partner, and artificial intelligence-related expenses may further depress margins.
• AI Factory's customer demand, contract size, data center utilization, and sustainable margin have not yet been validated.
• The minimum return requirements of special purpose entity investors may make management's proposed margin of up to 20% difficult to achieve.
• Disruption from artificial intelligence to traditional search and advertising models may cause advertising growth to slow further.
• Coupang's competitive recovery may be faster than expected, potentially weakening membership growth and e-commerce market share gains.
• Capital expenditures and operating expenditures for artificial intelligence infrastructure may be higher than expected.

What to watch

• Whether operating margin continues to decline in 2H 2026, and changes in marketing expenses and partner costs.
• AI Tab monthly active users, advertising click-through rates, conversion rates, and actual monetization progress.
• Whether AI Factory can secure economically meaningful customer contracts.
• The construction, financing, and commissioning timetable for 200MW of data center capacity.
• The equity structure, revenue distribution, and investor return terms of AI Factory special purpose entities.
• Market share performance of SmartStore, Naver Plus Store, and the membership business versus Coupang.
• Whether advertising revenue can reaccelerate, and whether the high growth of the services business can be sustained.