▶ 1Q14 sales surged 23.9% YoY to W638.0bn, in line with our estimate. However, OP came in at W189.9bn (18% above OP consensus of W160.7bn), beating our estimate by 8%. Marketing expenses dropped 49% QoQ to W41.7bn, 52% below our outlook (W63.3bn). LINE sales reached W145.2bn, up 6% QoQ. Games, sticker and ads & others accounted for 60%, 15% and 25% of gross sales, respectively. As for regional sales breakdown, Japan accounted for 80% and others 20% of sales.
▶ LINE subscribers grew 100mn YTD to 420mn as of April. LINE sales grew 15.8% QoQ, excluding FX effects. Due to changes in accounting practice, W12.8bn was added to 4Q13 LINE sales and W8.6bn to 1Q14. As such, KRW-based actual growth should be higher at 23.9%.
▶ 1Q14 other sales (IT service and real estate) dropped 34% QoQ due to changes in real estate service policy and a weak JPY. Naver stopped sales of real estate-related proprietary goods (properties for sale) in May and, as such, we expect 2Q14
other sales to drop 25% QoQ.
▶ We maintain BUY and our TP of W900,000 (SotP; sum of W17tn LINE value and W10tn portal value divided by total shares outstanding). 1) LINE continues to post robust growth and a diversified business model should catalyze sales growth. 2)
Diverse services through its mobile platform should bolster business model and the continued success of LINE should differentiate Naver’s share price from global SNS peers. 3) Closed-SNS service BAND should gain on increased global users
and mobile game releases.
*Source: Korea Investment & Securities Co.