Naver (035420.KS) Deep Dive

Thesis

Naver's strength lies in its commanding presence in the Korean search engine market and its burgeoning AI capabilities with HyperCLOVA. While recent negative news surrounding the Korean crypto exchange Upbit (owned by Naver's subsidiary) presents short-term headwinds, Naver's long-term growth potential is anchored in its AI advancements and strategic diversification into areas like stablecoins and venture capital.

Business Overview

Naver is the leading internet portal in South Korea, offering a wide range of services including search, e-commerce, news, webtoons, and cloud computing. Its core search business generates significant revenue, providing a solid foundation for investments in new technologies like AI. Naver's diversification strategy includes ventures into fintech, particularly through its stake in Upbit, a major Korean cryptocurrency exchange. However, this exposure also introduces regulatory and security risks, as evidenced by the recent hacking incident.

AI Relevance

HyperCLOVA, Naver's large language model (LLM), is a key differentiator. It is specifically tailored to the Korean language and culture, giving it a competitive edge over global LLMs in the domestic market. Naver is actively integrating HyperCLOVA into its existing services, such as search, translation, and content creation, to enhance user experience and drive innovation. The company's commitment to AI is further demonstrated by its significant investments in AI research and development, as highlighted by the recent surge in crypto VC funding linked to Naver's $10.3B deal. The ongoing competition among Korean tech giants in the stablecoin space further underscores the strategic importance of AI and blockchain technologies for Naver's future growth.

Technicals

The stock has shown positive momentum, with a 6.7% increase over the past 20 trading days. The Mansfield Relative Strength (RS) of 1.08 indicates that Naver is outperforming the broader market. However, the latest RS rank of 32 suggests that the relative strength is not exceptionally high compared to other stocks. Overall, the technical indicators suggest a positive trend, but further analysis is needed to confirm a sustained upward trajectory.

Risks

• Upbit Security Concerns: The recent $36 million hack of Solana-based tokens on Upbit and the Lazarus-suspected hack cast a shadow over the exchange's security and reputation, potentially impacting Naver's fintech ambitions.
• Regulatory Uncertainty: The evolving regulatory landscape for cryptocurrencies and stablecoins in South Korea poses a risk to Naver's investments in the fintech sector. Bolivia's push against crypto, as highlighted in the Crypto Weekly note, serves as a reminder of the potential for restrictive regulatory actions.
• Competition: The intensifying competition among Korean tech giants in the stablecoin market could erode Naver's market share and profitability.
• Macroeconomic Factors: Global economic uncertainty and fluctuations in the Korean won could impact Naver's overall financial performance.

Conviction

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