Naver Is Investing Aggressively in AI

For the past 15 years, Naver has led the South Korean internet search market, through which it generates decent revenue growth, high margins, and strong cash flow. While Google has been taking overall search market share, we estimate that Naver retains around two thirds of the overall search market and a higher percentage of the lucrative local South Korean searches, which it monetizes primarily through display advertising and paid search placements. Naver’s strategy has been to use this strong search business to build an integrated internet platform business by adding other services including e-commerce, financial technology, content production, and cloud services. However, we see the rise of artificial intelligence as introducing uncertainty to Naver's key search market, due to human AI searches replacing traditional searches and the prospect of AI agents replacing human-led searches. Several studies indicate that human AI searches result in significantly fewer clicks through to other websites than traditional searches do. AI agents are also becoming available that can handle the whole shopping process, from product discovery and price comparison to final checkout, on behalf of a human user. This could negatively affect Naver's search and e-commerce business, which is built on human search and shopping.