Naver's Net Profit Suffers as AI Costs, Base Effect Weigh -- Update

Published on 2025-05-09 at 00:20

By Kwanwoo Jun

South Korean internet giant Naver suffered a net profit setback as increased labor and marketing costs for artificial-intelligence services and other new business initiatives weighed on its bottom line despite solid revenue growth.

Strong one-off gains from the disposal of subsidiaries a year earlier also made its profit look weak this year, the company said.

In an earnings call Friday, Chief Executive Choi Soo-yeon remained upbeat about the company's generative AI model, which she said will focus on upgrading its e-commerce and search services to enhance the user experience.

"We're seeing positive results," Choi said, referring to the impact of Naver's own AI tool on businesses.

Choi expects to see Naver's AI tool help generate profit from the second quarter through business-to-business deals. In the first quarter, the company secured a contract from the country's central bank, the Bank of Korea, to provide cloud-computing services with its own large language model, HyperCLOVA X, built in. That followed a similar deal with state utility Korea Hydro & Nuclear Power, Choi said.

Starting as a search engine, Naver has grown to become a digital powerhouse, offering services ranging from online advertising and shopping to mobile payments and paid-content subscriptions. The company in March launched a standalone shopping app, called Naver Plus Store, and an AI-briefing feature.

The developments come as leading tech companies are racing to offer AI-backed services to lock in customers in an increasingly competitive online space. Naver is also betting on the technology to boost growth at its flagship e-commerce and search-platform businesses.

The AI-driven spending increase has eaten into earnings, with the company saying Friday that its first-quarter net profit slumped 24% from a year earlier to 423.70 billion won, equivalent to $301.6 million. Still, that was largely in line with analysts' expectations, according to a FactSet-compiled consensus.

Revenue rose 10% to 2.787 trillion won for the period, and operating profit gained 15% to 505.30 billion won. Online-advertising growth was solid across its AI-backed search and e-commerce platforms. Revenue from its fintech and enterprise businesses also grew strongly.

Naver said the net profit weakness was partly because of higher business costs, including marketing expenses that surged 17%. With labor costs also up, by 8.1%, the company's overall operating expenses increased 9.3% for the quarter.

The bottom line also reflected a higher comparison base last year, when it booked gains from disposing of augmented-reality service provider Naver Z and some other subsidiaries, the company said.

Shares in Naver were recently 1.2% higher on Friday, paring their loss this year to about 4%.

Write to Kwanwoo Jun at [email protected]

(END) Dow Jones Newswires

05-09-25 0019ET