Naver beleaguered by weak Korean businesses amid Line woes

South Korea’s online giant Naver Corp. is struggling with sluggish core domestic businesses – commerce, search and sports – as Japan has already been pressuring the company to give up capital control in its joint venture with SoftBank Corp. operating the popular mobile messenger app Line in the country.

Naver’s commerce division is seeking countermeasures as the business, which makes up 27.5% of the company’s total sales, has suffered its first-ever quarterly decline in transaction value, according to industry sources on Tuesday.

Its transaction value fell 1.6% to 12.2 trillion won ($9 billion) in the first quarter from the previous three months, although the e-commerce unit logged record sales of 703.4 billion won thanks to healthy advertising, brokerage and sales fees, as well as paid memberships. It was the first time for the company to report an on-quarter drop in transaction value.

“The lower transaction value bodes ill,” said a Naver official. “We are preparing measures (to address it) as it is expected to affect memberships and ads.”

That came as Chinese e-commerce giants such as AliExpress, Temu and Shein have been quickly expanding their presence in South Korea, biting into the domain of local players including Naver.

The online behemoth was the No. 2 internet shopping service provider with a market share of 23.3% in 2022, following leader Coupang with a 24.5% share, according to the Korea Fair Trade Commission.

SEARCH, SPORTS BUSINESSES SLOW DOWN

Naver’s search business is also losing ground as global Big Tech companies are raising their market share in South Korea with generative artificial intelligence platforms such as ChatGPT developed by Microsoft Corp.-backed OpenAI.

Naver, the country’s top online portal made up 56.6% of the local search market in the first 19 days of this month, lower than 60% at end-2023 and 64.8% at end-2022, according to InternetTrend, a domestic market tracker.

On the other hand, global tech giant Google's market share is on the rise, reaching 35.7% in the May 1-19 period from 29.1% at end-2023 and 26.8% at end-2022.

South Korean users are likely to use advanced AI services including OpenAI’s GPT-40 and Google’s Gemini 1.5 Pro more than search engines, further hurting Naver, industry sources said.

Naver lost momentum in its sports business as the over-the-top streaming platform TVing of the country’s entertainment powerhouse CJ ENM Co. won the rights to broadcast the country’s professional baseball league games in 2024-2026. TVing vowed not to resell the rights to Naver.

Baseball fans no longer need Naver's online platform to watch games, hurting its search business and ad traffic.

Those bearish factors hammered Naver’s share prices down to 179,100 won in April, the lowest level since October 2023.

NEW GROWTH ENGINES HAVE YET TO SUCCEED

Naver has been seeking new growth drivers to change its business model focusing on the search and commerce sectors. The efforts have yet to pay off, however.

Naver services based on its upgraded large language model (LLM) HyperCLOVA X are struggling to compete against those of global Big Tech companies.

The company is working on a digital twin platform in Saudi Arabia but it is expected to take more time to make money from the project as it is still in its infancy.

Further, Naver’s goal of expanding its businesses in Southeast Asia has hit a roadblock as Japan ramped up pressures on the company to sell its stake in LY Corp., the operator of Line, which is also popular in Southeast Asia.

Unionized workers at Naver asked South Korea’s National Pension Service (NPS), which has a 7.96% stake in Naver, to exercise the stewardship code to block any sale of LY’s stake.

Write to Ji-Eun Jeong at jeong@hankyung.com
 
Jongwoo Cheon edited this article.