Naver Corp

KRX:035420

Earnings Call Transcript 2023-Q3

[Operator]

Good morning, we will now begin NAVER's 2023 Q3 Earnings Conference Call. In today's conference call, we will hear from NAVER a presentation, and then we're going to take questions from the audience. [Operator Instructions].

Now without further ado, I'd like to hear NAVER's presentation.

[Unknown Attendee]

Good morning. I would like to thank the analysts and investors for joining NAVER's 2023 Q3 earnings presentation. As always, we have CEO, Soo-yeon Choi; and CFO, Nam-Sun Kim joining us on our call 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 the business highlights.

[Soo-yeon Choi, executive]

Good morning. I'm Soo-yeon Choi, the CEO. In 2023, despite the ongoing economic slowdown, NAVER is strengthening the competitiveness of its existing businesses by introducing various measures to improve search efficiency, content consumption and users' length of stay. At the same time, we have been exploring new monetization avenues and undertaking a careful restructuring of cost structures to enhance profitability. As a result, we achieved a significant level of operating profit in Q3 even during the seasonal off-peak period.

In August, we shared a concrete road map for our generative AI service lineup and monetization in response to technological changes. In October, we -- our investments to secure future technologies led to the launch of a platform-building project in the Middle East, affirming our competitiveness in the global market.

First, I will discuss the search platform business. In Q3, despite the continued weaknesses in the online advertising market, we continued on our efforts to further enhance our platform, leveraging AI technologies and launched new products [indiscernible] advertisers performance-oriented needs and worked on improving the efficiency of existing products to strengthen our competitiveness.

In October, we focused on understanding users' interest in providing personalized and dynamic search results in Smart Block format. We also worked on revamping the UX and UI of integrated search taking into account the usability of future AI search services so as to deliver new user experiences. This revamp has enhanced availability and visibility of search results, which is anticipated to improve users' search efficiency and lead to increased clicks and longer [indiscernible] longer drilling times in the future. In addition, we have introduced the trending together blog and the search feed blog to allow users to seamlessly transition to new discoveries.

Thanks to the summer vacation season, Place Ads maintained a strong performance, setting a record high daily average revenue. Its Q3 revenue grew by 70% compared to the same period last year. We continuously worked on enhancing the matching quality of diverse search engines with various multi-contextual queries as well as expanding exposure advertising materials like images to improve advertising efficiency. As a result, as of the end of September, the number plays at paying advertisers jumped to 51% to 130,000 compared to the same period last year.

Efforts to expand and apply NAVER's advertising platform capabilities to external media also persisted. This quarter, we introduced our product enhancements with proven advertising effects on platforms like [indiscernible] frequently checked by users interested in digital and home appliances. Going forward, we will continue to explore new retail media channels as well as strengthen our collaboration with existing media to enhance efficiency in areas like ad placement, ad features and QR matching so as to strengthen our presence in the market.

In the case of display advertising, demands related to [ digital gifts ] and the Asian games worked to its favor, but decreased PC surf and continued weaknesses in distribution and construction sectors that turned overall downturn. However, all is not well as the automotive, health care and F&B sectors will still be recovering and performance-based advertising is growing. We aim to further enhance our platform and expand premium offerings to position ourselves as the most preferred platform when the economy fully recovers.

After conducting tests in Q3, we officially launched a new NAVER app with an expanded highly personalized recommendation service starting from November 2. The service is offered through a total of 4 tests based on topics, namely shopping, home content and clip.

The button of the home screen, the new personalized content recommendation service called Home Feed has been introduced. With this improvement, we can tailor content to users' interest and offer content creators who produce high-quality content, more exposure opportunities. Among them, the short-form service, clip, which was launched last quarter, achieved its annual target of 1 million DAUs and 10 million daily views in August, laying the foundation for growth ahead of schedule. We plan to expand the category and create our programs until the year-end to enhance both the quality and quantity of content.

In line with the NAVER's app redesign, moreover, we are exploring new advertising inventory and introducing new products with improved advertising effectiveness and information delivery capabilities so as to drive revenue growth recovery. The interstitial ad showcase, which was launched in Q2, has been actively utilizing major campaigns by well-known brands like Samsung Electronics, Apple, Disney, Tyson and KeyBanc. We plan to enhance branding effects in line with the app revamp schedule.

We are preparing to provide a new search experience by using NAVER's generative AI, HyperCLOVA X to our AI-based next-generation search service, which we initiated PC testing for in September, is showing greater user usability. Cue: is designed with a focus on improving user satisfaction and reducing hallucinations to enhance search reliability through integration with NAVER vertical services, also showed higher reliability ratings and user evaluations compared to competitors.

Users also expressed a high satisfaction with shopping and local search results. Therefore, starting from November, we plan to partially apply this to PC-initiated search by utilizing high-quality data exclusively available to NAVER and expand into various subject areas.

Next year, we will roll out Q2, the mobile environment and gradually expand this service by supporting multi-model technology to enhance NAVER's SGE. We are also diligently preparing tools to make it more convenient for creators' businesses and sellers within the NAVER ecosystem to utilize our services and increase their productivity.

CLOVA for writing, which we're preparing to enhance the productivity for creators, began testing on October 16. Although it is still in the early stages, a post containing AI-generated content already make up nearly 30%, and we have received positive feedbacks from nearly 70% of the users.

We will also newly unveil CLOVA for AD to advertisers. We are preparing a pilot program, combining conversation experience-based generative AI, together with traditional search advertising and display advertising in collaboration with Nike at the end of November. Since its announcement in August, CLOVA for AD has seen a really significant interest from many advertisers. As a result, we plan to attract more advertisers in the first half of next year. Through this, we aim to enhance the efficiency of existing advertising products and improve the ways users consume and explore advertising information.

Next, I will move on and provide an update on our commerce business. Despite an overall sluggish online shopping market in Q3, NAVER's commerce GMV reached KRW 11.9 trillion, marking a 14.3% growth compared to the same period last year. Even after excluding the impact of the Poshmark acquisition, NAVER maintained a significant growth trajectory with a 8.2% increase Y-o-Y, outperforming the market, such as a holiday and summer vacation season pushed up the service GMV.

The on-platform product GMV, excluding afflicts, amounted to KRW 8.2 trillion, up 15.9% year-on-year, while the service GMV jumped 46.5% Y-o-Y to record KRW 1.8 trillion. Among the product GMV, brand store GMV saw a 46% increase Y-o-Y, thanks to the rising transaction volumes across various industries. KREAM has been instrumental for this growth and expanded its share in the product GMV by attracting new customers and diversifying its product categories. The service GMV also achieved a steady growth, primarily driven by the rapid increase in travel-related transactions in relation to the vacation season and extended through the holiday.

Brand stores are solid, a steady growth, particularly in digital, electronics brands with high GMV contributions as well as in food and health care categories where the delivery-guaranteed service proved effective. The number of stores increased evenly across diverse industries, including fashion and beauty. The total count of the brand stores grew to more than 2,000.

Furthermore, on October 5, we officially launched a brand solution package that harnesses various technologies and data for integrated brand marketing. In Q4, we plan to introduce a brand launch solution that enables diverse membership management and exclusive membership benefits and events. We will also open a Brandstore tab and showcase services aimed at enhancing engagement between brands and consumers.

The market conditions are faced by commerce ads were not favorable as advertisers cut back on marketing expenses. But the provision of shopping mall product ads for digital and home appliances, coupled with increased seasonal demand for electronics that led to a boost in sales in the relevant industry. Furthermore, by automating the expansion of AI-driven advertising slots, we were able to enhance both user experience and monetization without compromising user convenience.

As 1P advertising continues to grow and the revenue share of the Posh show live streaming broadcast expands rapidly, we anticipate Poshmark will play a crucial role in advertising as well as in revenue growth next year. As such, by increasing the conversion rate and maintaining growth, we're focusing on efficient manpower management and marketing to ensure cost efficiency. Poshmark achieved an EBITDA surplus for 3 consecutive quarters.

Amidst change in global macro environment and volatile e-commerce ecosystem, NAVER consistently reviews and upgrades its strategies prioritizing the interest and experiences of both sellers and users. Going forward, NAVER will remain vigilant about market changes and employee proactive strategies, utilizing our distinctive NAVER shopping portfolio, which boosts the highest visitor count in Korea and the most friendly environment for more than 2,000 brands and 600,000 volunteer sellers, so as to deliver greater value to both users and sellers and to ensure a healthy mutually beneficial growth.

Next, let me provide updates on the fintech business. In Q3, NAVER Pay TPV recorded KRW 15.2 trillion, up 22.5% Y-o-Y and 4.4% Q-o-Q. Among them, non-captive TPV recorded KRW 6.9 trillion, up 46% Y-o-Y, backed by continued increase of on-site payments, the addition of large new merchants, including Airbnb and the positive performance of summer vacation, overseas travel-related industries. As such, NAVER continue to see an expansion in its external ecosystem. Thanks to the growth in [ MST ] as well as booking and other payments, Offline TPV recorded KRW 1.7 trillion, which is twice the amount compared to the same period last year. In particular, MST payments saw a notable growth since NAVER Pay points and money were added to payment options at the end of September, making it now usable at all offline card-accepting merchants. We will continue to enhance user payment convenience and strengthen the offline payment ecosystem moving forward.

When it comes to our financial businesses, we've expanded partnerships for the loan comparison service, offered Simple Savings account subscription service, Jeonse deposit loan guarantee product recommendation service, launched the My Insurance coverage and NAVER service and introduced shareholder verification system for its online stock discussion forums. As such, various high potential services related to securities, real estate and finance under the umbrella of NAVER Pay have been reinforced. Going forward, we will continue to expand our product line up and provide more competitive financial products by leveraging quality payment and financial traffic and to refer into a comprehensive financial platform.

Next, let me move on to Webtoon's Q3 performance. Despite the expansion of full-fledged offline activities and continued marketing efficiency policies in Q3, our IPs and platform-operated efforts continued and resulted in the global Webtoon integrated GMV of KRW 479.4 billion, up 5% Y-o-Y and 9% Q-o-Q.

In particular, the NAVER Webtoon saw a growing share of regional and serial works and successful IPs in Japan and posted the highest GMV growth rate. As a result, it ranked #1 in terms of monthly Webtoon app user counts in Japan. Webtoon in Korea also recorded a modest growth with the inflow of users following the success of major IP's adaptation into video content and active CRM-based user activation. In the U.S., strengthened AI-based recommendation service and the successes of new releases helped to maintain the growth trajectory despite blockbuster Webtoons are staying on high [ ADAS ] and marketing spending cuts.

In Q3, we introduced a new SMS communication feature with the platform called Creators Home to facilitate communication between creators and readers by sharing their latest updates on various other content. In just a short period, over 1,700 creators have opened their homes attracting visits from over 8 million users. This has also translated into increased engagement with their work.

Our focus on strengthening profitability continued in Q3, i.e., enhancing marketing efficiency and actively exploring monetization efforts with regard to ad and IP businesses. In addition to paid content, we introduced rewarded ad products in Japan and North America, which led to a rapid growth in advertising revenue. IP business expansion also resulted in greater sales. Going forward, we plan to strategically maintain the optimal balance between profitability and growth instead of relying on one-off cost cuts to by raising overall resource, input efficiency and expanding revenue.

In Q3, with the solid portfolio of Webtoons led to numerous domestic and international headworks, reaffirming the value of Webtoon IPs. Netflix adaptations on NAVER's Webtoon's Mask Girl and D.P. 2 ranked #1, not just in Korea, but also in several other countries. And since the release of the videos, Webtoon GMV jumped to 5 and 20x, respectively, showing a strong influx of viewers for the original works.

In Q4, we have highly anticipated works like Doona and Vigilante lined up for productions and screening. In Japan, NAVER Webtoon original Teenage Mercenary recorded monthly LINE Manga GMV of KRW 1.6 billion, which is the highest in 2023 for a single work. Furthermore, the top of store for MD Goods opened in Q3 was a big hit, attracting around 120,000 visitors. By expanding offline touch points like this, we aim to increase not only additional revenue, but also the reach of royalty to our IPs.

When it comes to NAVER Cloud, we are focusing on expanding business in the cloud infrastructure and platform services market and the SaaS market, leveraging the generative AI foundation model. Our Gen AI lineup unveiled in this year's time conference in August, including the foundation model, business and creator productivity enhancement on our cloud-based, customer-tailored AI solutions, user experience incorporating NAVER's core services are under tests and in the process of service enhancements and updates in line with the original time table.

The foundation model, HyperCLOVA X, which functions as a cornerstone of all technologies is currently undergoing upgrades from its initial version in terms of coding and domain-specific data. The conversational AI service, CLOVA X released together with HyperCLOVA X is being utilized primarily for productivity enhancements such as information recommendations, domain-specific queries, summarization, translation and writing.

Service improvements are currently underway based on our user feedback focusing on addressing issues like repetitive answers and generic responses. We plan to introduce new features like external document references, imaging editing and integration with external services and conduct relevant tests within the year to enhance productivity.

We have in our pipeline, a work productivity enhancement solution called Connect X. We started testing the solution on NAVER Cloud on October 26 and initiated testing involving NAVER employees today. The solution will provide specialized tools for different job roles such as coder and enable efficient work-related communication and generate process and summarize various documents to enhance work efficiency. Moreover, we plan to further refine the AI models and features and advance the services.

Finally, the integration of the foundation model with NAVER services for personalized B2B services is also progressing smoothly. Neurocloud for HyperCLOVA X, which boasts strong security, thanks to its fiscal independence, has compiled significant references and preparing for its debut in November. The upgraded version of the CLOVA studio and AI development tool customizable for businesses using business data-based HyperCLOVA X was released on October 18 and is currently under tests, amidst high expectations of various start-ups and enterprise customers. We expect it will become a new revenue source.

As such, we aim to leverage our advanced technologies designed for B2C as well as B2B services and NAVER's proprietary data to provide tools and tailor services for users, creators and businesses to help enhance their productivity and efficiency while generating new income sources.

NAVER has invested in AI robotics and cloud technologies to secure future technologies, and there was something with an instance where we were able to affirm the potential overseas applications of such technologies. In October, we've announced that NAVER will be building a digital twin product platform for the Saudi's Ministry of Municipal and Rural Affairs and Housing. For the next 5 years, NAVER will build and operate a 3D modeling based digital twin platform involving 5 Saudi cities, including Riyadh and use the platform for urban planning, monitoring and natural disaster predictions. This is a significant achievement as it shows how highly NAVER's technologies are recognized by global businesses in the next-generation urban planning B2B and B2G markets. Going forward, expect to expand our footprint beyond Saudi Arabia to other parts of the world.

Besides SNOW's Gen AI-based photo product within the camera app and yearbook by EPIK have garnered significant attention from users across the globe and resulted in new revenue generation. EPIK, in fact, ranked #1 in app stores in 36 different countries and attracted new paid subscribers. We will continue to showcase our diverse AI-based product lineups and drive our growth.

Last but not least, I would like to share with you NAVER's ESG achievements. Since 2022, NAVER strengthened the alignment between the management KPIs with its ESG targets based on 7 key ESG strategies, and have transparently disclosed to the public its annual ESG report containing its ESG outcomes, long-term directions and goals.

And recently, NAVER received the highest rating of A+ in the comprehensive assessment done by KCGS under the Korea Exchange for its ESG achievements. NAVER will continue to enhance its ESG framework and engage in pioneering ESG management activities to remain as a trusted company in the future.

Next, our CFO, Nam-Sun Kim, will walk you through Q3 financial performance.

[Nam-Sun Kim, executive]

Good morning. I'm the CFO. I will present Q3 financial results. NAVER's Q3 revenue recorded KRW 2.4452 trillion, up 18.9% Y-o-Y and 1.6% Q-o-Q, led by the growth in key businesses.

Without the effect of Poshmark acquisition, revenue was up 12.9% Y-o-Y. Despite these low ad and commerce business in Q3, the adjusted EBITDA, excluding the volatility of stock-based compensation and asset depreciation recorded KRW 550.6 billion, up 18.7% Y-o-Y, and 6.9% Q-o-Q.

While EBITDA margin recorded 22.5%, up more than 1 percentage point Q-o-Q. The adjusted EBITDA once again reached a new all-time high, thanks to our company-wide efforts to improve the cost structure, which led to a slow down and the rising labor and marketing expenses. OP increased 15.1% Y-o-Y and 2% Q-o-Q and came in at KRW 380.2 billion, while OP margin edged up Q-o-Q to record 15.5%.

Next, let me discuss revenue by each business area. The search platform recorded KRW 898.5 billion, up 0.3% Y-o-Y and down by 1.3% Q-o-Q. Despite the sluggish online ad market in Q3, the search ad revenue rose 3.5% Y-o-Y, thanks to our sustained efforts to advance the platform and the inherent strength of NAVER as a media channel. NAVER, in fact, is the only global ad platform to post a positive quarterly growth even during the endemic.

Display ad revenue declined by 9.5% Y-o-Y, mainly due to the continued impact of the economic slowdown. As mentioned in Q2, this decline is expected to reverse as businesses resume ad spending if and when the economy recovers. But to accelerate this rebound, we have put in place various measures, including revamping down the NAVER app and refining the overall platform as well as expanding premium offerings.

The commerce revenue recorded KRW 647.4 billion, up 41.3% Y-o-Y and 2.3% Q-o-Q. Even without Poshmark, the revenue increased 14.7% Y-o-Y, outperforming the average growth rate of the Korean commerce market. In particular, commerce ad revenue increased by 5.5% Y-o-Y and 0.7% Q-o-Q, thanks to the introduction of ad slot optimization technologies. Commission and sales revenue rose 105% Y-o-Y and 3.5% Q-o-Q. The inclusion of Poshmark and Brand Stores, travel, KREAM services with higher commission rates contributed to the revenue rise. The subscription revenue from membership fees increased 29.7% Y-o-Y and 4.3% Q-o-Q with the number of subscribers increasing by over 20% compared to the previous year.

The fintech revenue recorded KRW 340.8 billion, up 15.1% Y-o-Y and 0.3% Q-o-Q. The total TPV stood at KRW 15.2 trillion, up 22.5% Y-o-Y and 4.4% Q-o-Q. Among this, our non-captive TPV jumped to 45.8% Y-o-Y and led the overall growth. Offline TPV recorded KRW 1.7 trillion, increasing by twofold compared to the same period last year, thanks to the addition of Samsung Pay MST payment feature and the rise in booking and order payments. Content revenue recorded KRW 434.9 billion, up 39.5% Y-o-Y and 3.5% Q-o-Q. Global Webtoon GMV maintained its upward trajectory, recording KRW 479.4 billion, up 5% Y-o-Y and 9% Q-o-Q. The success of video adaptation of the IPs and improved user activity backed by platform enhancements, including stronger AI recommendation service, helped to push up the GMV. Webtoon in Japan, in particular, saw a steady GMV increase thanks to the expansion of original and serial works.

SNOW's revenues jumped 36.1% Y-o-Y, driven by the success of the new AI products, including the profile and yearbook products in SNOW's camera app. ZEPETO also enjoyed a 10.3% increase Y-o-Y, thanks to the peak season effect and the launch of 2D animation characters.

Cloud revenue recorded KRW 123.6 billion, up 30.3% Y-o-Y and 18.3% Q-o-Q. Among this, B2B revenue increased 19.9% Y-o-Y and 11.4% Q-o-Q, thanks to a change in NCP revenue recognition method and an increase in the number of LINE Works paid IDs. Other revenues are grow by more than fourfold Y-o-Y, driven by the new revenue generated from the Chungbuk Education Office's Whale Book platform building project.

Next is on expense items. Development and operation expenses, including payroll, declined 2% Q-o-Q with the ongoing tight hiring control and selloff of Webtoon's consolidated equity in some of its subsidiaries. The increase in marketing expenses was kept at below 4% Y-o-Y, without the effect of Poshmark acquisition, thanks to the cost management measures of key businesses, including content. Infrastructure expense increased 10.8% Q-o-Q due to the completion of Gak's second data center and new AI equipment investments, but only inched up slightly compared to the year before. We will continue to make adequate level of investments in AI equipment in line with the launch of new AI models and services.

But this year's total infrastructure costs will not exceed 7% of revenue as initially planned. Next year, we also plan to continue investing in the additional GPUs required for enhancing AI but kept at a reasonable level, not deviating too much from the current proportion in the total infrastructure costs.

Next, let me discuss the P&L by business. First, combined margin of search platform and commerce improved slightly Q-o-Q, primarily because of an increase in search ad share in search platform and a marked growth in travel fee revenue with high contribution margin in commerce. Fintech margin rose close to 9% Q-o-Q, thanks to the increase in booking revenue driven by seasonal factors such as summer vacation. When it comes to content, losses of each segment widened compared to the previous quarter. Webtoon's internal-facing ad revenue decreased and one-off account-keeping issue were the main drivers. If such items are adjusted, then Webtoon showed a positive adjusted EBITDA under efficient marketing strategies. SNOW improved its profitability compared to the previous quarter through monetization efforts and rationalization of its business portfolio. Moving forward, efforts will continue to reduce losses in the content business. Without the impact of the decrease of stock-based compensation expenses, then cloud's P&L stayed flat Q-on-Q.

Consolidated net profit in Q3 recorded KRW 356.2 billion, up 53.8% Y-o-Y and 24.2% Q-o-Q. The increased gains from investments in associates and declines in FX losses attributed to the improvement Y-o-Y while increased valuation gains on financial products and the impact of the base effect from the Q2 valuation losses related to fund entities led to the Q-o-Q results. Finally, I will discuss the cash flow and our balance sheet. Q3 free cash flow recorded [ KRW 189.9 billion ], up KRW 169.4 billion Q-o-Q, primarily due to an increase in adjusted EBITDA and a reduction in the amount of corporate tax payable. A total of $800 million in loans were taken out for the acquisition of Poshmark in January of this year. But a total were $4.8 million was repaid until Q3, resulting in an additional decrease in the outstanding loan balance.

In addition, since the second half of last year, we have been rebalancing our non-core investment asset portfolio, including direct and indirect funds, investment stocks and beneficiary certificates. So far, until Q3, we've had around KRW 700 billion of securitization and an additional KRW 100 billion worth of securitization, which took place in Q4. Besides, NAVER-issued Samurai bonds on November 1, becoming the first IT company to do so. They are NAVER's debut Samurai bonds issued by a domestic private company without a guarantee for the first time in 7 years.

Based on its sound credit standing, they were managed to issue the bonds with the different maturity tranches ranging from 3.5 years to 12 years at an average issuance rate of 1% level. Notably, NAVER succeeded in issuing the bonds over the maturity of more than 10 years for the first time among domestic issuers. The bonds are worth JPY 28 billion in total, and they will be used to pay back yen-denominated borrowings due sometime in November. Through the latest insurance, NAVER gained access to a new source of funding AKA the Japanese bond market. This will further solidify NAVER's capability to secure stable liquidity to drive its mid-to-long term growth.

Finally, pursuant to the newly announced shareholder return plan this year, NAVER paid to the shareholders on August 22 cash dividends worth KRW 62.4 billion, which is around 15% of the average 2-year consolidated free cash flow. Also, in line with the newly announced treasury stock retirement plan this year aimed at enhancing shareholder value, NAVER resolved in the October 31 BOD meeting to retire the treasury stock worth 1% of issued shares and will cancel, as of November 7, around KRW 305.3 billion worth of stock based on the closing price on October 30. This ends the Q2 financial performance update. We will now take your questions.

[Operator]

[Operator Instructions] The first question will be provided by [ Jin Guk Kim ] from [ Keeyung ] Securities.

[Unknown Analyst]

I have a very high-level question. It's been 2 months since you held the DAN23 event. And I understand that since then, the company had put in a lot of efforts to try different things and run different internal tests. I would like to understand what the outcome is like versus your original expectation, especially when it comes to AI-based initiatives. I believe that the Ps and Qs, the quantifiable aspects, are very hard to measure. So it's quite important for us to understand the qualitative assessment that the company has. And also the second part of the question is, does the company have a plan to disclose going forward specific KPIs relating to, for instance, including your Cue: solution as well as other commerce solutions? I believe that if the company provides more visibility regarding a very solid KPI figures, that will really help the market have a better understanding. So would you be planning to provide us with an update on that?

[Soo-yeon Choi, executive]

So regarding the overall AI services and the technologies there, I understand that there's been a lot of questions as to how it will play out going forward. And currently, in the domain of AI-driven initiatives, there's a very fierce competition. So NAVER, from the very start, we had been thinking very hard as to whether we will be able to meet market expectation in terms of our technological and service offering-related competitiveness and whether we will be able to live up to the road map that we've set for ourselves and satisfy our B2B customers and our other client base.

And I can tell you at this point that the results that we are seeing are better than what we had originally expected. We have been received very well, very positively, in terms of the B2C services that we've provided, including Cue: and Clova for writing. And also for B2B solutions as well, we've been able to build on, one by one, different references and in so doing was able to confirm that there is market feasibility or viability in terms of competition. And so at this point, the company is developing different plans so that we may be able to, going forward, share the specific KPIs as we go ahead as a means for us to communicate with the market. So yes, we are considering that at this point.

[Operator]

The following question will be presented by Jae-min Ahn from NH Investment & Securities.

[Jae-min Ahn, analyst]

I'm Ahn Jae-min from NH Investment Securities. My first question relates to the fact that I know that you've started monetizing from October your Brand Store and guaranteed delivery. Since it's been about 1 month, can you provide us with an update regarding the take rate from these different products? And what impact do you think that this will have on your P&L for next year? Second question is, can you also provide us with an update with the overall advertisement market backdrop especially for Q4 as well as first half of next year because we -- I believe that we are still in a quite difficult economic cycle?

[Soo-yeon Choi, executive]

Regarding your question on the take rates and the monetization for the guaranteed delivery and the Brand Stores, I can tell you that things are going quite smoothly. Since we are only at the very beginning of this monetization phase, I'm a bit cautious as to specifically tell you as to what our top line revenue contribution is. But going forward and then come next year, we believe that its contribution to our top line revenue will be quite significant. We will continuously keep a very close watch of what our sellers' performances are looking -- look like and also receive their feedback, and we'll continuously also endeavor to further scale up the quality of services.

[Nam-Sun Kim, executive]

Regarding the question on the overall advertisement market forecast for Q4 and next year, we've experienced October now, and I believe that we are seeing a bit of a signs of recovery from the ad market versus Q3. So we think that in terms of the search ad, we will be able to grow more than the growth that we've seen in Q3 during the fourth quarter. And also for the commerce, I believe that we would be able to slightly outperform the Q3 levels, especially also in light of the fact that the overall economic GDP growth is also expected to inch up.

Regarding the question on take rate. As you know, we have applied about 1% to 2% of fees on Smart Stores. For Brand Stores starting October, we applied by 2% to 4%. So it's been about a month. And we see, for the branded stores, we will be able to get more than a mid-level of an increase in terms of the take rate versus the legacy take rates that we have applied. So we think that the contribution going forward in the fourth quarter is going to inch up. And I believe that since there's -- the revenue growth is going to be by a larger margin compared to the GMV growth.

[Operator]

The following question will be presented by Dong Hwan Oh from Samsung Securities.

[Donghwan Oh, analyst]

My first one relates to the fact that you've changed the revenue recognition method for your cloud business, the NCP. What is the impact of that? And next year, how much of an increase should we expect in terms of your infrastructure spending?

[Nam-Sun Kim, executive]

So the impact on the figure for the cloud business was a one-off figure. Previously, we've made an adjustment in the overall period upon which the revenue had been recognized. And because of that impact, there was a carryover impact for revenue recognition in terms of -- for the revenue that was incurred previously. And so that had an impact of about KRW 9 billion of positive impact or plus impact for the Q3 number. If you were to exclude that one-off impact that on a -- compared to the -- on a Q-on-Q basis, basically, the year-over-year growth rate is flat.

Regarding our projections for next year's infrastructure spending, at the beginning of the year, we communicated that our infrastructure investment would be controlled below 7% up and against the top line revenue. And we expect that going forward in the next year, we will be able to keep it to that level. And so in terms of the CapEx investment, 2024 CapEx will not much deviate from what we've seen back in 2023. I say that because we have completed the construction -- phase 1 construction for Sejong Gak, the data center. And so that's going to have an impact of lowering the data center CapEx by about KRW 100 billion. But on the other hand, in order for us to further scale up our AI capabilities, we will continue to make investment into GPUs. So that will have a replacement effect versus the decline that we see in data center investment. So once again, versus the figure that we've seen in 2023, we will not be too far off from the level that we've invested in '23. And also, we will keep to make sure that the infrastructure spending share against our revenue keeps within the target.

Well, thank you very much. Since there are no more questions in the queue, we would like to, at this point, close NAVER's Q3 2023 earnings presentation. We look forward to your continued support. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]