Naver loses $7 bil. in market cap in three months

Naver’s market cap has shrunk by 7.68 trillion won ($6.79 billion) over the past three months as the company has faced stricter antitrust regulations amid sluggish earnings.

According to the Korea Exchange, Sunday, Naver shares ended at 727,000 won in the latest trading session Friday — down 0.41 percent from a day earlier.

Following the drop, its market cap stood at 23.96 trillion won, the ninth-largest market cap on the main KOSPI bourse.

Three months earlier, Naver stock hit a record high of 975,000 won on June 9 and its market cap reached 31.64 trillion won — the fourth-largest.

On Friday, foreign investors, such as Credit Suisse Securities and Morgan Stanley, led the downturn by selling their Naver shares.

The drop came after second-quarter earnings were disclosed.

The internet portal operator posted 285.2 billion won operating profit — up 4.6 percent from a year earlier — but down 1.9 percent from a quarter earlier.

Net profit was 171.4 billion won in the second quarter, down 19.6 percent year-on-year and 18.7 percent quarter-on-quarter.

The company attributed the disappointing earnings to its subsidiaries’ increased investments and marketing expenditure.

In a conference call in July, Naver chief financial officer Park Sang-jin said, “There are subsidiaries including Naver Webtoon, Snow, Camp Mobile and others. These companies are yet to make profits while investing in new services and the earnings reflect that.”

Capital expenditures — money spent to upgrade fixed assets — reached 123.7 billion won in the second quarter, up 149 percent from the previous year.

Unfortunately for Naver, market watchers also expect the company to face more financial hard times in the third quarter, because mobile advertising, the firm’s key revenue source, is slowing.

“Along with the slowing market, Naver’s domestic advertisement sales growth is losing its momentum,” KTB Investment & Securities analyst Lee Min-a said.

“The expected growth rate of Korea’s mobile advertisement market declined to 11 percent this year, down from 18 percent in 2016. Naver’s advertising sales growth is also projected to contract from 20 percent last year to 13 percent this year.”

Lee lowered Naver’s stock price target from 970,000 won to 870,000 won.

Another concern is the Fair Trade Commission’s designation of Naver as a quasi-conglomerate and its founder Lee Hae-jin as the owner with significant influence over management.

Following the designation, Naver will face tougher regulatory scrutiny and restrictions, which also will not help the share price.

According to FnGuide, a financial statistics provider, securities firms’ average estimates of Naver’s third-quarter operating profit declined to 295.7 billion won from 300.4 billion won from three months earlier.