Choi Soo-yeon, CEO of Naver / Courtesy of Naver

Operating profit down 14% to 302 billion won in 1st quarter

By Baek Byung-yeul

Naver's first-quarter earnings fell short of market expectations as its profitability declined, due to soaring labor costs amid slowing e-commerce growth.

The internet company said Thursday that it logged 1.84 trillion won ($1.48 billion) in sales and an operating profit of 301.8 billion won in the first quarter, up 23.1 percent and 4.5 percent, respectively, from the same period of 2021. But the figures are still 1.6 percent and 11.6 percent below the market forecasts, respectively.

Its top executives attributed the lower-than-expected performance mainly to increased labor costs, adding that the company will offset the worsened profitability by controlling the increase in the number of employees to pre-pandemic levels.

"This year, we will focus on streamlining costs such as labor costs. We expect the company's profitability to improve soon," CEO Choi Soo-yeon told investors during a conference call.

Naver Chief Financial Officer Kim Nam-sun attributed the falling profits to "aggressive recruitment between 2020 and 2021."

"If labor costs start to be controlled to pre-pandemic levels this year, operating profit will be inevitably improved compared to the first quarter," Kim said.

Naver's total labor and welfare costs were at 381.2 billion won in the first quarter, up 15.2 percent year-on-year. As the executives mentioned, its staff grew significantly to 4,678 employees as of the end of 2021, from 4,076 as of the end of 2020. The company also increased employees' annual salaries by 10 percent recently.

A stock analyst also predicted that Naver's first quarter would fall short of expectations due to worsening profitability caused by rising employee costs. "We estimated that operating profit will decrease compared to the previous quarter because of rising labor costs after a 10-percent salary increase for all employees," said Sung Jong-wha, an analyst at eBest Investment & Securities.


Apart from the deteriorating profitability, each business sector of the company continued to grow. Its search platform unit, which is responsible for advertising revenue, earned 843.2 billion won in sales, a 12-percent year-on-year increase.

The commerce sector, which the company has been fostering intensively in recent years, posted 416.1 billion won in sales, up 28.3 percent year-on-year.

The CEO said the company's search engine, shopping, mobile payment, metaverse and cloud computing businesses have global-level capabilities, adding that she will find more opportunities in the global as well as domestic markets.

"We will strengthen the linkage of the search, commerce, payment and fintech businesses, create synergy, and further strengthen efforts to improve the continuous growth and profitability of domestic businesses, while seeking active partnership opportunities in the global market," the CEO said.

The company's stock price fell by 1.9 percent on Thursday to end at 309,500 won, reflecting investors' concerns over the possibility of a slowdown in its growth momentum.