Naver Offers Investors Access to Korea’s Answer to Google Search

By Alex Sirois

• Naver dominates Korean search and is its answer to Google.

• Recently launched generative AI initiatives bolster Naver’s near-term prospects.

• Naver’s share performance tracks Google’s share performance.

• Naver is a continuation of Korean business best practices with deep precedence.  

Korea has a strong history of building domestic brand champions. Those familiar with Korea’s modern economy will know that it is dominated by a group of businesses referred to as the Chaebol, or 재벌,  재 ‘chae’ meaning wealth and 벌 ‘beol’ meaning clan. 

A few dozen Chaebols were hand picked as the preeminent leaders in their respective industries in the 1960s. South Korea was rebuilding from the war and power was highly centralized under President Park Chung Hee. His economic plan granted a select group of businesses and the families that owned them, great power.

To this day, those businesses, most prominently Samsung, wield great influence over Korea’s economy. 

I could go on and on but the story of Chaebols is a one for another time. It relates to Naver because Korea has wholeheartedly adopted a domestic brand champion building mentality. The nation takes great pride in bootstrapping sector champions rather than importing globally dominant firms and overlaying them onto its economy. That is where Naver comes in. 

Naver is Google Korea 

If you’ve ever lived in or traveled to Korea you’ll be aware that Google’s functionality is very limited in the country. Google is either unavailable or makes up less than 50% of market share in very few countries: Specifically, both South Korea and North Korea, Russia, and China. 

In the case of Naver, it’s again because South Korea continues to make a concerted effort to establish its economy on the world stage. A big part of that is proving that its talent can create world-class alternatives tailored to its domestic market.   

In any case, Naver is Korea’s answer to Google in relation to search. It is one of few tech stocks globally that investors can find that truly serves as a facsimile for Google. That is a powerful catalyst in favor of Naver as an investment. 

I’ll get into greater depth about the opportunity below but first let me notify interested readers where it is available. Naver shares can be purchased in the over-the-counter markets under the ticker NHNCF or on the Kospi under ticker symbol 035420. And like all tech firms, Naver benefits from the emergence of generative AI. 

Those Kospi-traded shares make up 2.9% of the holdings of the Franklin FTSE South Korea ETF (FLKR), ranking the name as the sixth-largest postion among the 162 stocks. That exchange-traded fund is up 14.5% year to date.

Generative AI Holds Massive Promise for Naver’s Growth and Regional Strength

Naver unveiled generative AI services in late August. Those AI offerings, collectively called HyperCLOVA X, satisfy the same purposes other AI does from other companies. It improves search results, provides chatbot functionality, and is applicable to enterprise-scale firms and promises to rapidly increase efficiency overall. 

What makes Naver’s HyperCLOVA X potentially so powerful is the scale of the machine learning used to train its AI. It is one of only five firms known to have more than 100 billion parameters underpinning its large language model. 

Large language models (LLMs) are deep learning algorithms that can recognize, summarize, translate, predict, and generate content using very large datasets.

Naver’s Line app dominates domestically and in Japan. HyperCLOVA X will have garnered deep learning from those geographies that their U.S. equivalents simply won’t have been privy to. That gives Naver the potential to build AI-based products and services that are tailored to its region that appears advantageous. 

Similar Broad Forces Offer Google-Type Rebound Potential

Let me leave you with a few overarching thoughts that favor Naver overall. Firstly, the company continues to grow quite rapidly with top-line expansion expected for the foreseeable future. 

As well, Naver’s share prices remain subdued by the global economy. Inflation is rampant around the globe and quantitative tightening is the rule in most countries. South Korea started its rate hiking campaign in August of 2021 raising rates from 0.50% to 3.50% between then and January of 2023. Rates have been held there since. 

It shouldn’t be surprising, then, that Naver shares track other tech firms largely. Prices remain far below where they were in late 2021 and 2022. They’re slowly rebounding as an end to the worst parts of that tightening ease. 

That continues to make tech intriguing and Naver especially so for those interested in Korea and the firms that dominate its economy. 

On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. None of the above should be construed as investment or financial advice. Investing is inherently risky. Please perform your own due diligence.

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