Kakao and Naver, Definitive Leading Stocks in the COVID Era... Continuing Their Surge in the Second Half

[Asia Economy Reporter Eunmo Koo] The rapid growth of untact (contactless) services, which have firmly established themselves as the leading stocks in the stock market since the outbreak of the novel coronavirus disease (COVID-19), continues unabated into July.

According to the Korea Exchange on the 7th, Kakao's stock price closed at 300,500 KRW, up 2.21% (6,500 KRW) from the previous trading day. Notably, it reached an intraday high of 307,500 KRW, setting a new 52-week high and surpassing the 300,000 KRW mark for the first time ever. After a pause in June with a modest 1.5% increase, Kakao's stock price has surged 12.3% in just four trading days this month, showing renewed strength. NAVER also recorded an all-time high. NAVER's stock price rose 1.44% (4,000 KRW) to 281,500 KRW, approaching the 300,000 KRW milestone.

Since the beginning of this year, as they have been spotlighted as leading stocks in the COVID-19 era, their stock prices have steadily risen, significantly increasing their market capitalization. Kakao's market capitalization, which was 13.2338 trillion KRW at the end of last year, increased to 26.3839 trillion KRW based on the closing price yesterday, nearly doubling, and its market cap ranking rose from 23rd to 9th. During the same period, NAVER's market capitalization grew from 30.7376 trillion KRW to 46.2401 trillion KRW, an increase of over 15 trillion KRW.

Kakao and NAVER's stock prices have risen 97.0% and 54.2%, respectively, compared to the beginning of the year, recording high returns, and this upward trend is expected to continue. This is due to the revaluation of corporate value driven by high growth and profitability improvements in new businesses such as e-commerce, payments, and content, along with the added premium for contactless services.

Minjung Kim, a researcher at Hi Investment & Securities, stated, “As untact consumption increases and the online shopping market expands, the market share of large internet companies in the commerce sector will further increase based on their user base, search, and payment convenience,” adding, “In the mid to long term, the e-commerce market will be reorganized around internet companies.”

Looking at the market share of the top overseas e-commerce companies, Amazon holds 50% in the U.S., Alibaba 77% in China, and Rakuten 29% in Japan. In contrast, South Korea currently has no dominant player with an overwhelming market share, with all companies holding less than 20% market share.

Accordingly, large internet companies have significant potential to increase their e-commerce market share, and the expansion of commerce businesses is expected to create synergies with existing businesses such as advertising and payments, leading to mutual growth. Researcher Kim explained, “Both NAVER and Kakao maintain solid fundamentals, and despite the significant uncertainties in the global economy, favorable investor sentiment toward large tech stocks is expected to continue.”

Although the second quarter was directly affected by COVID-19, Kakao and NAVER's earnings growth trend is expected to continue. Performance-based advertising and shopping search ads within mobile platforms are anticipated to maintain stable revenue growth without major setbacks, and the growth trend in commerce and payment businesses is expected to continue due to increased contactless consumption.

According to financial information provider FnGuide, Kakao's operating profit for the second quarter of this year is estimated to be 95.2 billion KRW, a 135.0% increase compared to the same period last year, with sales rising 24.7% to 913.9 billion KRW. During the same period, NAVER's operating profit is expected to grow 76.8% to 226.8 billion KRW, and sales are projected to increase 11.1% to 1.8121 trillion KRW.