Naver Corp

KRX:035420

Earnings Call Transcript 2024-Q1

[Seon Ki, executive]

Good morning. I would like to thank the analysts and investors for joining NAVER's 2024 Q1 earnings presentation. As always, we have CEO, Soo-yeon Choi, and CFO, Nam-Sun Kim, joining us on our call today to walk you through NAVER's business highlights and strategies and financial highlights, after which, we will entertain your questions.Please note that the earnings results are K-IFRS based provided for timely communications 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 business highlights.

[Soo-yeon Choi, executive]

Good morning. I'm Soo-yeon Choi, the CEO. NAVER underwent organizational restructuring in early April, dividing it [indiscernible] into 12 specialized units, product and platform focused on developing and designating new user experiences and technologies, business and services dedicated to exploring new business opportunities in enhancing services and content involved in discovering and delivering content types teller-to-user needs.With this reshuffle, we aim to specialize and refine expertise in advertising, shopping and local markets to respond nimbly to market trends and proactively uncover new business opportunities.At the same time, through the product and platform unit, we aim to harness NAVER's core technologies such as AI, data and search, to provide differentiated experiences, fostering long-term technological growth and accelerating the strengthening of NAVER's capabilities.Based on the related organizational structure, we plan to gradually introduce high-quality personalized content and feed format on suitable platforms from April onwards, starting with the sulfur service Club and home feed launched in the second half of last year and thereby ensure uninterrupted content exploration and consumption experiences.Such fee-based content experience will result in the increase our time spent within the NAVER ecosystem, creating opportunities for seamless exposure of context-based advertising content.Ultimately, tailored advertisements will be delivered to users, enhancing advertising efficiency and contributing to the strengthening of NAVER's capabilities as a media platform. In Q1, the revenue from the search platform business are increased by 6.3% year-on-year to KRW 905.4 billion. Search revenue grew by 6.2% year-on-year driven by expanded ad creatives in Power length and the introduction of competitive bidding with in-place ads.This peso a 5.3% growth here in Year-on-year by strong performance ads, including spend of revenue from home feed advertisements and new advertising wins. As mentioned earlier, we plan to strengthen our platform capabilities by providing NAVER's entire suite of services in a feed format, including comprehensive search.And at the same time, we are going to also apply the AI to enhance the competitiveness of our advertising platform. At the end of March, we implemented a responsive ad feature within the search ads by leveraging AI to display at features in optimal combinations to maximize performance.We also started providing a feature that automatically generates AI copies based on LLM to help address the challenges faced by advertisers or agencies in registering ad copies. Furthermore, starting from April, we have been testing a solution that allows place operators to utilize the AI technology to summarize visitor reviews and suggest appropriate responses tailored to the reviews to improve services for both users and business owners.Moreover, we are progressively refining targeting technology to maximize ad effectiveness. On the service side, we're focusing on extending user time spent and generating new revenue streams based on hyperpersonalization technology within the NAVER app. [indiscernible] is exactly expanding its user base and the average daily clicks on our commented content within the feed are growing even more rapidly, validating the quality of personalized recommendations and the overall product excellence.In Q2, we plan to pilot AI functionality in the area of document quality assessment going beyond personalized content or recommendations. In addition, we will introduce personalization in the advertising domain and expand our lineup of feed style, ad products based on hyperpersonalization offering new products to a diverse range of advertisers.For the short-form video service clip, the number of clicks has grown by over 3x compared to the end of last year. And during the same time, the average views per user have increased by over 2x, demonstrating the potential for the success of the service. We will enhance connections with vertical services, such as place clip solutions and collaboration through brand sponsorship products so that click users have easy access to various newer services and generate new revenue streams.As a result of these our various efforts, the average daily time spent on the NAVER app main page, at the end of Q1 increased by 10% compared to the time spent prior to the application revenant the end of last year, demonstrating growth potential.We anticipate that in the mid-to long term, Home-Feeding will drive overall growth and time spent are surpassing the significant contribution NAVER News is currently making. And we believe this will enable the NAVER app to successfully evolve into a sustainable and sound service.Sejong City started its better visit in the last year is also still growing as it approaches its official launch on May 9. In March, we achieved an MAU of 2.25 million and having consistently increasing the number of users since the release.We are prioritizing user experience enhancement by adding new features such as video sponsorship and channel subscription based on various user feedback. After the official launch of we plan to explore service enhancements through updates such as missions also shared by Club sponsorship and business channel provision.Also, we will continue our efforts to increase revenue by introducing mid-roll ads and expanding performance ads using the CDC platform. Furthermore, we expect to reduce network usage fees by applying re-technology to the CGG service in the half first half of this year. We will strive to further optimize the grid technology and build a streaming environment that satisfies both users and streamers.Next, I will provide an update on our comments. In Q1, NAVER's overall commerce GMV achieved KRW 1.2 trillion, up by 6% year-on-year, while on platform GMB, excluding upland marketplace, recorded KRW 7.4 trillion, up 9.4% year-on-year, driven by the continuous growth in brand stores and service GMB.Service GNB in particular shows sustained growth backed by improvements in these real-time search and detailed search exposure, maintaining the upstream from Q1 last year, while GMB searched as we transitioned from the endemic phase.Despite external competitive pressures, our brand stores continue to thrive with both a number of participating brands and GMV showing consistent growth, especially the furniture interior segment saw significant growth due to the spring moving season and bidding season, while the Food segment, cooperating with major brands is also growing rapidly.As a result of seasonal effects, the fashionpara and accessory segments are also seeing significant growth of propelling GMV. This year, we plan to strengthen strategic collaborations by jointly establishing annual marketing and promotion plans with top brands in sectors such as food and digital plants.Furthermore, we aim to continue our growth by securing new partnerships with small and medium-sized brands in the living fashion and furniture industries. For the guaranteed delivery service, where we have observed a substantial growth in GMV in categories with high demand for fat deliveries such as kids, foods and beauty demonstrating its effectiveness.In April, we introduced same-day delivery and Sunday delivery, focusing on daily consumer goods and fashion categories to further enhance our guaranteed delivery service. We plan to gradually expand coverage to increase user convenience. Also, to enable more users to our delivery, we have started offering a 3 month of pre-guarantee delivery shipping benefit to labors members.Cosmote [indiscernible] turnaround to profitability within just 1 year of acquisition, backed by growth in GMV and revenue in Q1, couple good cost efficiency measures through a focus on its North American operations.In particular, 1P advertising revenue has grown nearly 3x compared to last year, and we anticipate it to be a significant growth driver this year. Alongside the growth of Puchalavestream broadcast, we plan to enhance our competitiveness by introducing NAVER search technology in accruing past loans, making it easier for sellers to find the products they want.In Q1, we capitalized on Poshmark community and launched a tape fashion post show, selling products in pirate latest Korean fashion trends. It recorded the highest influx of new viewers per show, and we anticipate it to evolve into a service that continues to attract new users.Moving forward, we intend to organize high-quality shows, our teams to run highly sought after merchandising categories through micro communities. This will enable us to foster a substantial growth of live commerce in the relatively nascent U.S. market. The U.S. Commerce business has started as an e-commerce venture offering product and price comparison services for non-captive malls are based on search.Since then, starting with Smart Store, NAVER has embarked on creating its own unique ecosystem evolving into a business that provides a similar service flow from search shopping in place to payment and reservations. It's a platform that encompasses SMEs brands and other platforms for inclusive growth, making it a one-of-a-kind platform in the world.Even as we speak, NAVER has a local international e-commerce platforms are conducting advertising sales and brand marketing within the NAVER ecosystem. For example, a Chinese are our cross-border platform company actively entering the Korean market recently has become a major advertiser and NAVER similar to a leading from e-commerce platform.As such, we are growing together as partners. NAVER aims to expand the domestic mine ecosystem by growing together with users, sellers and partners as a companion in the evolving market landscape. We're committed to providing convenience solutions to SMEs to help further their growth and strengthening strategic collaborations with brands by offering spaces and products tailored to their image, so as to upgrade ourselves as a brand marketing platform.Next, let me provide updates on the Fintech business. In Q1, we repay achieved a TPV of KRW 16.7 trillion, up 24.8% year-on-year and 2.2% Q-o-Q. Non-captive TPV recorded KRW 8.2 trillion, up 2% year-on-year driven by holiday and vector school promotions and further expanded NAVER's third-party ecosystem.Off-line TPV also continued its growth trajectory, driven by increased QR and MSC-based payments and NO2 payments and posted KRW 2.2 trillion up 174% year-on-year. After the introduction of Samsung paid to NAVER payment system over the course of a year, NAVER pay was used at 1.43 million locations nationwide, leading to the expansion on the repeat benefits and convenience.This in transferred growth in QR reservation and order payments and created a virtuous cycle. In our platform business, the value of the loan comparison inquiries are recorded KRW 1.6 trillion, up threefold quarter-on-quarter, that by the expansion of our product line of integration with various NAVER services. In particular, our mortgage loan comparison service and auto insurance comparison and service have demonstrated their competitive edge in terms of comparison and recommendation features by offering users quick and convenient experiences.Furthermore, we have developed an alternative credit scoring model and leveraging nonfinancial data for credit assessment called NAVER Pay Score in collaboration with nice information service and start of applying it to personal quite loan products offered by KeyBank and SBI Savings Bank.By leveraging nonfinancial data based on 73 million cases was [indiscernible] data, we plan to expand opportunities for better loan conditions. We plan to continue strengthening our platform business, including financial intermediation by expanding the lineup of loan insurance products and leveraging unique features of NAVER pay.Next, let me move on to Webtoon's on Q1 performance. The year 2023 marked a year of fundamental restructuring and based on its ground work. The year 2024 is poised to be the inaugural year for achieving both the top line and bottom line growth.Under the strategy of focusing on our core strength, involving resource allocation to key markets, such as Korea, the U.S. and Japan, nonstrategic asset divestments and workforce optimization, the EBITDA and operating profit of Webtoon further expanded compared to Q4 of last year.Despite the ongoing cost efficiency measures implemented since last year, global GMV of Webtoon recorded KRW 458.7 billion, up 9% year-on-year and 3% Q-on-Q powered by our IPO adaptations and advancements made to the platform.In Japan, the increase in the proportion of original series and the lineup of blockbuster hits. So, with the monthly GMV of more than JPY 100 million continues to drive strong growth in GMV.In North America, IT adaptations such as Miami [indiscernible] and promotions for our local original hits, including Mafia Mini, expanded the influx of new users a leading to sustained growth.Also in France, other releases of new titles has led to an increase in play users, contributing to continued high growth. In Korea, we plan to continue strengthening our platform by leveraging a robust user base while looking in users through personalization and advanced AI recommendation technologies.Platform-wide close was distributed evenly across content IP business and advertising. In particular, advertising revenue in Japan surged by over 3x year-on-year, driven by an expanded at line. We plan to upload this site for successful formula in North America and further diversify our business model.As part of this road map in North America, we launched ad PaaS, a rewarded ad model in Q1 where users can watch up to 30-second video ads or to unlock 1 episode. In Q2, we plan to introduce the super live model, allowing users to support creators by making donations for individual episodes. This will not only promote a more engaging fan community ecosystem but also provide creators with new monetization opportunities, thereby reinforcing the cycle of valuable IP creation.For the IP business, our various blockbuster heads emerged from the diverse story portfolio of Webtoon. We're affirming the value of Webtoon IPs once again. Various return originals such as TVs, [indiscernible] chicken muted and a killer paradox has successfully transitioned to screen adaptations. After airing the global Webtoon GMV for [indiscernible] been increased 18-fold while the global views for ateleparatax also saw a 44-pone increase, demonstrating the significant impact of original works.In Q2 of several highly anticipated working preparation, including the show, based on Webtoon Originals Money-gaming Pagan, to be released in Netflix. We will continue to diversify our IP business through ventures and to view of production, merchandise, publishing gaming and more to solidify our position as the global #1 storytelling tech platform.Last but not least, I would like to share our NAVER Cloud's B2B business performance. Since its March in November last year, the delivery of NAVERA HyperCLOVA X has been progressing smoothly. By leveraging such references, we will continue to be of efforts to expand our business to various sectors for securities crucial and internal gen AI services are needed.Businesses are increasingly building dedicated models or AI services using HyperCLOVA X. Today, over 2,000 companies and research institutions are using HyperCLOVA X and we are collaborating with various businesses and institutions in sectors such as finance, education, law, retail and gaming to build innovative services based on HyperCLOVA X.In fact, we signed an MOU with the Bank of Korea last December to undertake the financial and economic digital innovation initiatives and the process towards finalizing the agreement has been progressing smoothly. Also in March, we signed an MOU with HINDI HD HINDI to collaborate on cloud migration and AI commercialization.The goal is to leverage Gen AI services to launch our services, integrating AI technology across various industries, starting with finance, shipbuilding and maritime shipping. To further accelerate the expansion of the NAVER centric AI ecosystem, NAVER Cloud launched the DASH model at the end of April, which offers higher speed and lower cost compared to existing models.DASH is expected to alleviate the burden on enterprises adopting generative AI by enabling various tasks at a cost that is 1/5 of the previous models. Going forward, we plan to continue expanding our model lineup to provide a variety of tailored options considering the types of tests and costs so as to promote the adoption of AI among enterprises.Finally, NAVER Cloud announced a joint research project with Intel in April to build an AI chip ecosystem. Together, we will establish and operate an AI joint research center to build a new AI chip software ecosystem based on Gati. They were plans to lead these research efforts and expand the AI ecosystem centered on HyperCLOVA X.NAVER will focus on proactively identifying new business opportunities based on more specialized and dedicated organizational structure this year. We will concentrate on leveraging AI and data to offer differentiated experiences and accelerating the advancement of the core competitiveness of our products and platforms.Next, our CFO, Namani will walk you through Q1 financial performance.

[Nam-Sun Kim, executive]

Good morning, I am CFO. I will present our Q1 financial results. In Q1, we recorded a revenue of KRW 2.5261 trillion, up 10.8% year-on-year but down by 0.4% Q-o-Q.Adjusted EBITDA in Q1, excluding variables such as [indiscernible] compensation and depreciation and amortization expenses, recorded KRW 581 billion, up 19% year-on-year and 0.2% Q-o-Q driven by improved content profitability and Poshmark's increase of operating profit and showed a stable upward trend.On margin, OP margin in Q1 recorded 17.4%, up a 1.4 percentage point Q-o-Q because of temporary reductions in stock-based compensation expense due to stock price volatility and exclusion of the diversies consolidation.For your reformation, we conducted structural adjustments in our equity holdings through transactions with LY Corp to rationalize the tax structure of snow, entering the autonomy and operational efficiency at NAVER, a subsidiary of Snow.By taking over a 6% stake in Stock Corporation held by the intermediate Global Corp and Mitas subsidiaries of LY Corp. This allows now, which have been in continuous services to be eligible for tax consolidation with NAVER.As a result, our NAVER's stake in stone Corporation increased from 84% to 90%, leading to an annual tax savings effect of over KRW 10 billion starting from this year due to the deduction of sole-service-related tax. In exchange for the transfer of snowshares from LY Corp has now transferred a portion of its ownership in NAVER's to LY Corp. And as a result, NAVER's even which had incurred a total loss of KRW 85.3 billion in 2023 was deconsolidated from NAVER as of March 1.Next, let me discuss our revenue by each business. In Q1, search platform revenue recorded KRW 905.4 billion, up 6.3% year-on-year and down 2.5% Q-o-Q. Search ad revenue expanded its growth by 6.2% year-on-year, driven by improvements in Carling exposure and the introduction of bidding for place ads. Display ad that we struggled due to the economic downturn last year.So, a turnaround with a 5.3% increase year-on-year, reversing the downward trend over the past 5 quarters, supported by the strong performance of performance-based ads such as home feed ads and the acquisition of new advertisers. We plan to continue seeking growth by introducing new products along with acquiring new advertisers in the future.In 2024, Q1, our commerce revenue recorded KRW 703.4 billion, up 16.1% year-on-year and 6.5% Q-o-Q even with the disappearance of the base of that of Poshmark. Commission and sales revenue saw a significant increase of 28.9% or Y-o-Y driven by the monetization of brand solution package and guarantee delivery service in October last year while creams growth and the acquisition of soda also contributed.Excluding the asset of sodas integration, revenue increased by 10.4% Y-o-Y while commission and sales revenues saw a growth of 17.5% Y-o-Y. Membership revenue grew by 24% Y-o-Y and 3.9% Q-o-Q, thanks to the continued increase in the number of subscribers and active users. Fintech revenue in Q1 recorded KRW 353.9 billion, up 11.2% Y-o-Y and down 6% Q-o-Q.Overall TPV in Q1 reached KRW 16.7 trillion, up 24.8% Y-o-Y and 2.2% Q-o-Q. Among these are non-captive TPV that the overall growth showing a 51.8% increase compared to the same period last year, driven by continued ecosystem, ecosystem expansion. And offline TPV increased by 174% Y-o-Y, driven by the expansion of QR and MST-based payment and the growth of over services.Content revenue recorded KRW 446.3 billion, up 8.5% Y-o-Y but down 4.3% Q-o-Q. Without the effect of labor disease, deconsolidation, the revenue increased by 10.2% compared to the same period last year.Global Webtoon GMV in Q1 recorded KRW 458.7 billion, up 9.1% Y-o-Y. Despite the continued depreciation of the Japanese yen, driven by the expansion of original content in Japan and the influx effect of successful IP adaptations.Revenue in Q1 increased by 11.7% Y-o-Y, backed by steady growth in GMV, expansion of original content production revenue in the IP business and increased advertising in Japan. Excluding the impact of exchange rate fluctuations, i.e., based on the Japanese yen, GMV in Japan increased by 24% Y-o-Y and the growth of user and paying user base in Japan is accelerating.Snow's Q1 revenue decreased by 20.7% Y-o-Y and 1.5% Q-o-Q. However, when excluding the effect of deconsolidation of NAVERs, revenue was up 4.8% Y-o-Y but down 17.3% Q-o-Q. The number of camera paying subscribers is on a steady rise by linking content using AI features. Cloud revenue in Q1 2024 recorded KRW 170 billion, up 25.5% Y-o-Y but down 7% Q-o-Q.Among these, B2B revenue increased by 22% Y-o-Y driven by the reflection of NAVER's Cloud orders, revenue from the use of gemative AI, such as HyperCLOVA X and the expansion of PITs for LINE Works. Other revenue grew by 187.5% Y-o-Y due to the baseline effect reflecting CLOVA device sales in the second quarter of 2023.The queues were reached with the [indiscernible] in December and with HD Handy in March this year to introduce HyperCLOVA X and we are promoting the introduction and utilization of generative AI in various fields.Next is on expense items. Development and operations expenses remained roughly flat Y-o-Y despite upward pressure from salary increases and the consolidation of soda, thanks to more efficient allocation of personnel and productivity improvements, which helped the curve labor costs. Partner expense, however, increased 9.8% Y-o-Y due to increased revenue-linked expenses.Infrastructure expenses jumped our 28.1% Y-o-Y due to new server asset acquisition for the sedan IDC, which opened in the second half of last year and temporary impact from new service launches. Meanwhile, marketing expenses saw a slowdown in growth rate driven by marketing expense optimization in the content segment. This year, infrastructure and marketing expenses will be managed by close attention to the release of new AI models, while the growing demand for AI products and the rapidly changing e-commerce and web to markets.Next, let me discuss the P&L by business. First is the search platform and commerce segment. Despite the monetization of the brand solution package and guaranteed delivery service introduced last October as well as the growth of premium and the expansion of Poshmarks operating profit, the segment saw a slight dip in profit margin compared to the previous quarter due to increased fixed costs resulting from the opening of SegunDC and the consolidation of soda.In the case of Conchmark, it turned EBITDA positive in just 1 year since acquisition and management reached an operating surplus in Q1, with both our growth in profitability and significantly improved. It is anticipated that this year, we will be dedicated to further enhancing products and services.Fintech products margin, rather profit margin saw a slight improvement compared to the previous quarter, driven by the expansion of payment TPV and revenue from platform businesses. When it comes to content, the growth in Webtoon content and ad revenue, the improvement in profitability, driven by increased our proportion of Japanese original Webtoon GMV as well as fundamental structural improvement, led an expansion in operating profit margins.NAVER's profitability also improved through the deconsolidation of NAVER's zee and cost efficiency measures in key business units. Cloud P&L in Q1 edged upward despite the uptick season in the public sector, thanks to the form inflection of B2B in your cloud and Gen AI usage fees in the financials as well as the expansion of pain IDs in LINE works.A solidated net profit in Q1 increased compared to the same period last year, reaching JPY 55.8 billion, driven by gains from the deconsolidation of subsidiaries, such as NAVER's zee.Next, I will discuss the cash flow and balance sheet. Free cash flow in Q1 recorded KRW 506.2 billion, up KRW 123.6 billion Q-o-Q due to the growth in adjusted EBITDA and a decrease in CapEx. In addition, borrowings totaled KRW 3.3629 trillion, down KRW 62.3 billion compared to the previous quarter. Short-term borrowings decreased by KRW 450.7 billion. And as a result, the short-term borrowings ratio improved by 13 percentage points from 22.7% in the previous quarter to 9.7%.The million raised to acquire Poshmark was fully repaid in Q4 last year. And currently, the borrowings are evenly distributed in Korean U.S. dollar and Japanese yen. The average borrowing rate for NAVER is at around 1.7%. With the approval of the shareholders in March this year, cash dividend of approximately KRW 119 billion, equivalent to 20% of the average consolidated FCF for the past 2 years was paid out on April 17.In addition, plans are in place to retire 1% of existing treasury shares within this year. The Board of Directors will resolve in the matter at their appropriate time, and we plan to share the details once they are finalized. This ends the Q1 financial performance update. We will now take your questions.

[Operator]

[Operator instructions] Your first question comes from the line of [indiscernible].

[Unknown Analyst]

My first question relates to, first of all, if you look at your advertisement business, we see that the momentum for the display ads have been coming up on a year-over-year basis. And it looks like it's mainly driven by some of the reshuffling that you've done, especially revamping of your main page. Should we consider this as a temporary impact? Or could we look forward to a more sustainable trend going forward? And will we be able to get additional updates on, for instance, the 10% engagement improvement that you shared with us previously?And also, are you seeing any specific signs of --Moving on to my second question. It seems that if you look at your commerce GMV, compared to your competitors, you seem to be moving slower. Is that because of invitable some of the temporary impact from the mix of the GMV? If you think that this is a structural issue, what are some of the efforts that you are currently planning to narrow that gap with your peers?

[Nam-Sun Kim, executive]

This is the CFO responding to your first question. Yes, you are correct. If you look at our display ad, we've been able to drive up the engagement, thanks to the revamping of the main feed. And we believe that, that has played an important contribution in bringing up that growth of display ad to around 5%. And also that's been impacted by the performance-based ads as well.We do not believe that this is a temporary impact. We have seen a sustained level of CTR improvement and efficiency improvement regarding our advertisement business as we look in a forward.So we expect that for the display ad this year compared to the previous year, we can look forward to a more sustained level of growth. Now, if we then look at the advertisement market, it is too early to give you any affirmed positioning on how this market is going to play out into the future.However, if you look at the GDP figures that's been announced for the first quarter, we see that there are signs of improvement in the domestic economy. But, of course, there will be some time lag for that to have an impact on the advertising market. Having said that, from NAVER's perspective and from our advertisement business, if you look at Q1 and the past quarters, as we enter into Q2, I can tell you that the trajectory overall is quite positive.And I believe that we will be able to expect more of a robust growth for this year compared to the previous year.

[Soo-yeon Choi, executive]

This is the CEO responding to your second question. Regarding the commerce market. Yes, I think there is a need for us to separate market and the growth rate that we see from our peers. I do accept that during the pandemic and after the end of the pandemic, yes, we are seeing that slowdown in the market growth appears in the market, we see that the growth is mainly driven by the grocery segment.And we've seen some moderation in the growth of the commerce business in the overall market. But if you look at NAVER and the particular merchandise the products and services that we really offer as well as some of the long-tail aspects, we can tell you that our platform-based commerce growth has been quite solid.Now, you also need to take into consideration that in terms of the types of long-tail products that NAVER has displayed its strength. I believe that once there is a rebound in the overall domestic economy, and once there is improvement in the consumption sentiment, I believe that we will be able to see a rebound.And also, if you consider that NAVER's performance should not just be judged, specifically just based on the GMV, you need to consider the fact that NAVER is a platform that connects the advertisement, the marketing, the shopping the place and the payment. All of these aspects are connected in the online platform.So, it's very difficult to make just across-the-board judgment by just looking at the GMV feature. And also, for instance, what I mean by that is that we could also consider a new opportunity to emerge in the area of advertisement. If you look at that from a commerce competitors perspective and also we can bring and play with the strength of the pay aspect, the payment aspect.So, we can become a company that provides opportunity on both the online and offline, and we can be a partner of choice to the participants of the overall ecosystem. And so, there is also that very positive aspect that we can derive from. Based on the fact that NAVER is a platform-based player.And also with regards to some of the shortcomings that we have regarding logistics and delivery, we will continue to build upon our capabilities and supplement our capabilities so that we will be more equipped to respond to the market needs.

[Operator]

Our next comes from the line of Seyon Park with Morgan Stanley.

[Seyon Park, analyst]

I have a question on your AI business. If you look at the global trend this year, we see immense amount of investment that is being put in by the so-called global big tech in the tune of tens of trillions. Now, I would like to understand as to NAVER's approach to your AI business, would you continuously stick to your HyperCLOVA model? Or would you also consider a multimodel approach considering other third-party AI algorithms and models as well from a mid- to longer-term perspective.And specifically for year 2024, when we want to assess your AI-related performance, what are some of the products and services that we and the market should focus on?

[Soo-yeon Choi, executive]

No, I think there is misunderstanding in that people expect the size of the CapEx actually is going to be proportionate to the amount of capabilities one can derive out of AI.When you talk about the tens of trillion that is being invested by Big Tex, I think that is referring to the immense amount of money that is required to purchase computational power, computational devices and equipment.If you just look at the large language models and if you compare their performance basis, basically, the amount of investment that is required in terms of the CapEx is not in proportion to the level of performance or the efficiency when derives out of those LLM models, especially if you compare the top 5 models, they are very lightweight, meaning that the amount of investment that has been put in for training these models are quite light and even lower than the amount that NAVER has spent as CapEx.And if you also look at the recent trend of how LAMA3 has become now an open source, we see that in terms of these language models, these universal models versus the amount of CapEx required for the computational hardware and the devices, I can tell you that these types of models are becoming more commoditized as we speak.

[Seyon Park, analyst]

So, looking at this from the CapEx perspective, especially for the universal models, as I've mentioned, it's been commoditized. And I believe that there's going to be a more focus put on the specialized verticals such as SaaS and other more differentiated models vis-a-vis what is being provided by the competitors.So, rather than immense amount of investment that is required for a computational power, just as is the case with NAVER's strategy, there will be more focus, I believe, going forward on specialization that better caters to the needs of the clients in terms of their language models as well as the use cases. So, we will see more specialization and scaling up as we go forward in line with those special verticals.For NAVER, the total aggregate amount of CapEx is more or less going to stay the same as we go forward. Also, as we've seen for the past 2 years, our investment into CapEx into the equipment was above JPY 700 billion, which has been used, and we've been spending more to purchase more of the GPU chips. Previous year, we spent accretive of JPY 150 billion. This year, there will be additional spending of JPY 250 billion for the purchase of the GPUs.Having said that, our aggregate amount of CapEx is going to stay flat as we go forward, but we will focus more on improving the performance of these models and to scale them up.

[Nam-Sun Kim, executive]

So, as we've done last year, we will continue to leverage our HyperCLOVA X to expand that to the application expand it and apply it to our overall ecosystem. You will, yes, focus on neuro ClOVA as well as CLOVA Studios. But also at the same time, we would bring and incorporate generative AI features across all of the neighbors services as well as the NAVER Webtoon as well.And once that deployment is well completed, I believe that we will also be able to drive efficiency improvement and better time spent regarding our advertisement business as well.

[Operator]

Our next question comes from the line of Dong Hwan Oh with Samsung Securities.

[Donghwan Oh, analyst]

My first question relates to your GMV growth for your commerce business, setting aside Poshmark for domestic, as you haven't disclosed that number, would you be able to? And also, you're very much your membership program. I would like to know because of the promotion that you recently undertook what is going to be the increase in the marketing spend that we are going to see this reflected in the second quarter number?And also just like Coupon is doing. Right now, you are providing free of charge delivery for guaranteed delivery. I would like to know after this event, would you make this a more regular thing?

[Soo-yeon Choi, executive]

Yes, even if we look at that relative percentage of growth, even after taking aside Poshmark, the domestic commerce GMV growth is more or less going to be quite similar to that overall level that we have previously shared. And, yes, for marketing spend in Q2, we are planning to spend a little bit more, but that's not necessarily a significant increase in terms of the absolute amount of marketing spend.It's just that we are testing many different things, experimenting different things. So, I cannot say that this is going to become such a long-term or secular trend when it comes to our marketing spend.In terms of membership as well as free delivery, yes, this is also some of the features that we are testing as we speak. So, it's too early to tell you whether this type of a scheme is going to become something regular as we go forward.

[Operator]

Our next question comes from the line of [indiscernible]

[Unknown Analyst]

Recently, we've seen a lot of press articles on the possibility of sale of equity holdings that you have in La Yahoo LH Corporation, if that plan or if that speculation actually is affected, there will be a significant amount of cash that is going to flow into the company.So, regardless of whether that happens or not, I just would like to get some color as to what the company's overall M&A approach is. And after the acquisition of Poshmark, you have been able to unlock the growth potential. So, I'm wondering whether if you're thinking of additional M&A opportunities are you focused on making that additional acquisition in the United States in the C2C e-commerce domain?

[Soo-yeon Choi, executive]

I'm sure a lot of you will have some questions relating to this administrative guidance that's been issued by the Japanese Ministry of Internal Affairs and Communication. The administrative guidance on calling for a sell-down of the equity holdings that is considered to be something that was quite extraordinary, basically.But regardless of this aspect, it's not about whether we comply with that guidance or not, I think what's important is that we make this decision and review this aspect from a mid- to longer-term business plan that the company has.At this point, we have not yet finalized the position of the company. But once we reach that final position, we will definitely come back to the market and communicate that message with you. We're in the process of talking very closely with the government entities as well as MSI as well, Ministry of Science and ICT and I take this opportunity to also extend my gratitude for the dialogue that we've engaged with the government entity.

[Nam-Sun Kim, executive]

Regarding your question about another M&A for the U.S.-based C2C player. When it comes to merger and acquisition, yes, we are always thinking about what potentials may emerge. But we are, at this point, not thinking of making any additional U.S.-based C2C company acquisition.We believe that in line with our strategy and our decision to acquire Poshmark has been right on considering the fact that we were looking for a company that had growth potential that had high brand value that had the trust from its consumers and also potential for improvement in its profitability and the growth.So, for this year, we would focus on improving and enhancing the products and services that is offered by Poshmark. That will be the key priority for us when it comes to C2C.

[Operator]

We will now take our last concern from the line of [indiscernible]

[Unknown Analyst]

My first question is, recently, I would like to know as to what impact your commerce user-related promotion would have on marketing spend going forward? And also what contribution would that make to accretive growth for your GMVs and your membership business?Second question, it's sort of a follow-up from the previous question. Setting aside Holdings, I would just like to understand as to because of the recent development, wondering whether this will have any implication on your future cooperation with SoftBank or LH Corporation. And, if so, what will be that direction of change?

[Soo-yeon Choi, executive]

So, regarding the promotion policies I've mentioned also before that, we are at this point, testing and experimenting with many different things. So, we will definitely be doing more this quarter, but we would have to wait and see as to what impact that will have on our GMV and the increase in the number of our member base.And the reason why we employ such promotion and provide benefits is because we want to be able to drive up the ticket size per member as well as a number of purchases that the members engage in. So, we can't just simply say that the promotion policy is geared towards or is just focused on increasing the number of members.

[Nam-Sun Kim, executive]

So, regarding Japan and our relationship with La Yahoo, holding and LH Corporation, in Yahoo, basically the relationship was that of a shareholder relationship and technology partner. We haven't yet reached a phase where there is a very close business related cooperation.In terms of the administrative guidance because there has been a notice on the provision of infrastructure, separating and also providing on a stand-alone basis. So, if that is affected, that may have an impact on our infrastructure revenue. But aside from that, there is not much that I can say at this point in time.

[Seon Ki, executive]

I think we've answered all the questions that was waiting in the queue. Once again, thank you very much for joining us. This brings us to the end of NAVER's Q1 2024 Earnings Conference Call. We look forward to your continued support. Thank you.