[Click eStock] "Kakao, Entering a Phase of Significant Profit Growth... Target Price Up 51%"

KB Securities Report
2021 Operating Profit Estimate Revised Upward by 29%

[Asia Economy Reporter Minji Lee] KB Securities maintained its buy rating on Kakao for the second quarter on the 10th, citing increased profit estimates due to growth in key business sectors, and raised the target price by 50.9% from the previous 285,000 KRW to 430,000 KRW.

In the second quarter, Kakao recorded sales of 952 billion KRW and operating profit of 97.8 billion KRW, up 30% and 141% respectively compared to the same period last year. By business segment, sales growth in core sectors such as Talk Biz (advertising and e-commerce, 78%), new businesses (mobility and pay, 149%), and paid content (KakaoPage and Piccoma, 46%) positively impacted the performance.

Researcher Dongryun Lee of KB Securities said, “Although personnel expenses related to XL Games and Pay Securities increased by 36% compared to last year, the sales growth in core businesses was greater,” adding, “The reduction of losses in new business sectors from 22.3 billion KRW in the first quarter to 18.4 billion KRW in the second quarter also contributed to profit growth.”

Talk Biz is experiencing high growth across all business areas except the portal. It is expected to easily achieve its guidance of over 50% growth this year. Biz Board maintained 8,400 advertisers one year after its launch, and in the second half of the year, media expansion within KakaoPage, Daum portal, and other proprietary services is planned. Accordingly, sales are expected to reach 214.5 billion KRW this year and 358 billion KRW next year, increasing by 216% and 67% respectively compared to one year ago. The new business sector is also smoothly progressing cost reductions alongside expansion in mobility and fintech business areas.

The ecosystem expansion centered on paid content is also positive. The combined transaction amount of KakaoPage and Piccoma (Kakao Japan’s webtoon platform) grew from 430 billion KRW last year to 1.4 trillion KRW in 2022, projecting a high annual growth rate of 48.2%. Piccoma recorded the highest sales in Japan’s non-game sector in the second quarter, accelerating growth, and based on key IPs, entry into the premium video content market is expected from the second half of the year.

Researcher Lee said, “Considering the growth in core business sectors and the elimination of the negative impact of COVID-19, we are raising operating profit estimates for this year and next year by 5.9% and 29.4%, respectively,” adding, “However, sales estimates are only slightly increased by 0.9%, considering that portals, IX, and Kakao M continue to be affected by COVID-19.”