Naver's Stock Drops 7% Despite Record Q2 Revenue: Why the 1 Trillion Won Share Buyback Fell Short

Despite announcing record-breaking Q2 revenue and a massive 1 trillion won share buyback, Naver's stock price tumbled by over 7% due to missed operating profit estimates and concerns regarding an upcoming capital increase.

Record 3.3 Trillion Won Revenue, But Profitability Lags

Naver reported a Q2 revenue of 3.3888 trillion KRW, a 16.2% year-over-year increase, marking its highest quarterly revenue ever. However, market sentiment quickly soured due to declining profitability. The operating profit stood at 520.3 billion KRW, down 0.2% YoY, missing the market consensus of 566.2 billion KRW.

The primary driver behind this earnings shock was the rapid expansion of AI infrastructure investments. Massive capital expenditures for server expansions and aggressive R&D to stay competitive in the generative AI space heavily weighed on short-term margins. While investors acknowledge the necessity of future growth engines, they reacted negatively to the immediate profit squeeze.

The Dilemma: 1 Trillion Won Buyback vs. Paid-in Capital Increase

To boost shareholder value, Naver executed a significant share buyback, canceling approximately 4.9 million shares (about 3.1% of total issued shares) worth 1 trillion KRW. Typically, such aggressive cancellation acts as a strong catalyst for stock price appreciation.

However, the positive impact was completely overshadowed by reports of a third-party paid-in capital increase involving Nvidia (approximately 7.24 million shares). Investors feared that the new shares issued to Nvidia would outnumber the canceled shares, effectively diluting the EPS (Earnings Per Share) enhancement intended by the buyback. Consequently, retail and foreign sell-offs pushed the stock down by more than 7% to the 210,000 KRW level.

Naver Q2 Earnings FAQ

• Q1. How will Naver's future AI investments impact its stock?
  A1. In the short term, heavy infrastructure costs will likely pressure operating margins, weighing on the stock. However, in the mid-to-long term, successful monetization of B2B AI solutions and global AI factory partnerships could provide a strong rebound momentum.
• Q2. Why did the stock drop despite the massive share buyback?
  A2. The market was heavily spooked by the impending issuance of 7.24 million new shares to Nvidia. The fear of equity dilution effectively neutralized the benefits of the 1 trillion won share cancellation.