Naver’s first-quarter revenue grew 16.3 percent from a year earlier, but operating profit growth slowed to 7.2 percent. The main reason operating profit grew more slowly than revenue was that spending on artificial intelligence (AI) infrastructure investment and content acquisition costs came first.

It is a structure in which investment comes first and profits come later. Naver plans to step up AI advertising monetisation from the second half of the year to narrow the gap, but whether that timeline will be met is seen as a key variable for margin recovery this year.

On May 7, Naver said its first-quarter operating margin fell to 16.7 percent from 19.1 percent in the previous quarter. A breakdown by cost item shows three factors overlapped.

Infrastructure costs rose 32.5 percent from a year earlier as acquisitions of new computing assets such as GPUs increased. Partner expenses also rose 19.9 percent as Winter Olympics and League of Legends Champions Korea broadcasting rights costs and the expansion of Npay Connect offline terminals coincided. About 18 billion won in broadcasting rights-related costs were recognised in the first quarter alone. Marketing expenses rose 18.9 percent as shopping marketing expanded and promotion costs increased for Poshmark and webtoons. Naver’s platform division margin fell 5.4 percentage points from a year earlier as all three factors were reflected at the same time.

Naver Chief Executive Officer Choi Soo-yeon (최수연) explained on a conference call on April 30 that "as generative AI spreads, differentiation in general-purpose public data is gradually weakening, while the strategic value of proprietary data that is difficult to collect and replicate is rising rapidly." The logic is that securing GPUs now and building up offline transaction data will feed into recommendation models that improve advertising targeting accuracy and conversion rates, returning as revenue.

Naver’s own data has in fact confirmed that advertising conversion rates can show a gap close to 2 times depending on whether payment infrastructure is linked. Management has consistently said the cost increase is upfront investment for future monetisation.

◆ Cost efficiency in parallel… GPU actual usage cut by about 30% versus expectations

Naver Chief Financial Officer Kim Hee-cheol (김희철) said the structure is not one in which only costs increase. "Through strategic GPU allocation and the introduction of a company-wide efficiency platform, we have already confirmed the effect, with actual GPU usage reduced by about 30 percent versus expectations," he said. "We will closely review the scale of investment, taking into account its contribution to AI monetisation and market conditions." The comments keep the stance of expanding investment while leaving room to adjust the pace depending on how quickly monetisation progresses.

Naver has set out its monetisation timeline in detail by quarter. From this month, it will upgrade its shopping AI agent into a business agent that combines membership benefits and delivery management. In the second quarter, it will begin tests of generative AI advertising combined with shopping and local services, and proceed with external media linkages with Criteo and Google. From the second half, AI briefing ads will generate revenue in earnest.

Choi said, "We will introduce it step by step starting with informational queries to minimise cannibalisation with existing search ads, while also improving revenue per traffic." The target is AI tab monetisation in the fourth quarter.

◆ For investment to lead to performance leverage

Whether rising costs can be converted into performance leverage was also a key issue on the conference call. CFO Kim said the company will maintain its stance of strengthening commerce marketing after the second quarter and signalled expectations that the investment will lead to revenue growth through an increase in transaction volume.

Some effects are already appearing in delivery investment. Sellers adopting N Delivery have a transaction volume growth rate 4 percentage points higher than sellers that have not adopted it, and members’ order frequency increased by more than 25 percent after delivery benefits were strengthened. In the same context, Smartstore transaction volume grew 14 percent from a year earlier in the first quarter, marking a smooth start toward an annual double-digit target.

Ultimately, whether Naver’s margins recover depends on three conditions aligning. AI advertising monetisation must be recognised as revenue within the planned quarters; the rise in infrastructure costs must slow after peaking in the first half; and commerce and delivery investment must translate into higher transaction volume and sustain service revenue growth.

If the first quarter was the quarter in which investment was executed, the third and fourth quarters must be the quarters in which that investment begins to translate into revenue. Second-half performance is expected to be the first test of the first of these three conditions.