Naver’s Q1 operating profit falls 11.6% on-year over AI investment costs

Naver, the operator of South Korea’s largest portal website and search engine, said Thursday that its operating profit in the first quarter fell 11.6 percent on-year to 257 billion won ($238 million), largely due to increased investment into new technologies like artificial intelligence.

Revenue during the January-March period rose 21 percent on-year to 1.31 trillion won. Net profit during the quarter came in at 153.8 billion won, down 27.1 percent on-year, according to Naver’s earnings report.

The Korean internet giant accredited the decline to its heavy investment into hiring some 1,500 new experts to lead the development of new technologies including AI. 

Funds were also allocated to securing new content and marketing activities for Naver’s overseas business as well as backing new projects led by its mobile messenger Line, the company said.

By business area, Naver’s advertisement sales rose 18.6 percent on-year to 133.1 billion won as a result of improved mobile ad products as well as successful online events linked to the PyeongChang Olympic Winter Games held in February.

Sales from Naver’s business platform came in at 592.7 billion won, up 16.1 percent on-year, as Naver improved its mobile search user interface and content and saw strong profits from online shopping search ads.

With the continued growth of Naver’s mobile payment service Naver Pay, the portal website operator’s IT platform business sales jumped 66.9 percent on-year to 75.9 billion won.

Naver’s content business sales increased 19.8 percent on-year to 29.6 billion won, on the back of the continued growth of its webtoon service platform and V Live, its live-stream video service featuring K-pop stars.

Line messenger, as well as other platforms operated by Naver, together generated a revenue of 481.2 billion won, up 22.9 percent on-year.

“Investing in talent acquisition and new technologies is a requirement to survive in a highly competitive global market. We plan to continue expanding our R&D investment this year,” Naver CEO Han Seong-sook said.

‘Outlink system’ for online news under consideration’

During a conference call to discuss Naver’s earnings, the company said it is considering to change the online news system to an “outlink system.”

Right now, Naver curates and displays news articles from various media companies on its main page and news tab. When a user clicks on an article, the content are shown within Naver’s site. In an outlink system, users would be redirected to the new company’s website.

Naver’s Chief Financial Officer Park Sang-jin said it is currently “sustaining an open stance” on a potential conversion to an outlink system and “reviewing the feasibility of this option” in partnership with multiple institutions and media companies.

Calls to revamp Naver’s news management system came light of a burgeoning controversy over an opinion-rigging scandal here that involved abuse of the firm’s article display and comment thread structure.

A power blogger named “Druking” and ex-members of the ruling party had used a computer program that uses borrowed or fake ID’s to artificially ramp up the number of “agree” clicks on comments of articles on Naver to sway public opinion.

Naver on Wednesday rolled out a new set of restrictions for its news comment thread system, including capping the number of times a user can click on “agree” or “disagree” on a comment at 50 within a 24-hour timeframe, and allowing only three comments per day.

But critics have argued that such actions still cannot fend off attempts like Druking’s which can manipulate how news commentary by targeting a single platform — Naver. Therefore, a switch to an “outlink” system has been suggested as one way to diffuse this problem.

By Sohn Ji-young (jys@heraldcorp.com)