[Into the Stocks] Cafe24 Riding the Same Boat as Naver... Still Time to Watch

Cafe24 Stock Price Rose 40.69% from August 2 to 11
But Unfavorable Views from Securities Firms
Poor Performance and Still Vague Cooperation Plans with Naver

[Asia Economy Reporter Gong Byung-sun] The stock price of Cafe24, which has formed a partnership with Naver (NAVER), has soared since August. This appears to be due to expectations that it can grow together with Naver, which dominates the domestic e-commerce market. However, securities firms point out that since the performance is sluggish, a concrete cooperation plan must be presented in the future to generate momentum for stock price increases.

As of 9:20 a.m. on the 12th, Cafe24 recorded 43,250 KRW, down 3.03% (1,350 KRW) from the previous day. Although it fell on this day, Cafe24's upward trend in August was steep. Until the previous day, Cafe24's stock price had risen 40.69% since the beginning of this month. The stock price, which had stayed in the 30,000 KRW range, rose to the 40,000 KRW range.

Cafe24 Forms ‘Blood Alliance’ with Naver... Aiming to Dominate the Commerce Market Together

Cafe24's rise is due to news of building a cooperative relationship with Naver. On the 10th, Cafe24 announced through a disclosure that it exchanged shares with Naver. Cafe24 issued new shares through a third-party paid-in capital increase, and Naver secured a 14.99% stake in Cafe24. Additionally, Naver transferred 310,327 treasury shares (0.19%) to Cafe24.

Naver secured a stake in Cafe24 to firmly establish its position in the commerce sector. Founded in 1999, Cafe24 has comprehensively provided e-commerce sellers with essential elements for operating shopping malls, such as mall setup, advertising, marketing, payment, and logistics. Since it has achieved steady annual sales growth of around 20% over the past decade, Naver is interpreted to believe that this will help expand the commerce sector in the future.

Moreover, it seems a turning point was needed amid fierce competition with Coupang in the commerce sector. As commerce becomes the standard for shopping, Naver's online shopping market share is estimated to have expanded from 14% in Q1 last year to 19% in Q2 this year, while Coupang's share grew from 12% to 18% during the same period. From Naver's perspective, it has absorbed Cafe24, which was both a competitor and had the capability to compete against Coupang.

Accordingly, Cafe24's growth is expected to be determined by its cooperative business with Naver's commerce division. Fortunately, Naver is showing prominence in the growing commerce sector. Naver's commerce revenue grew 40.3% in Q1 and continued high growth with a 42.6% increase in Q2. Furthermore, there are forecasts that Naver and Cafe24 are targeting the Japanese and Southeast Asian markets together, raising expectations for overseas market expansion.

However, Securities Firms Are Not Convinced... Sluggish Performance and Still Ambiguous Cooperation

However, securities firms are not confident about Cafe24's future. This is because it is fundamentally underperforming and the cooperation with Naver remains ambiguous. In fact, Mirae Asset Securities set Cafe24's target price lower than the current price at 42,000 KRW, and Yuanta Securities also suggested 40,000 KRW. IBK Investment & Securities set a target price of 48,000 KRW but downgraded its investment opinion from ‘Buy’ to ‘Hold’.

(Provided by IBK Investment & Securities)

Cafe24's sales in Q2 this year recorded 69.5 billion KRW, up 12% year-on-year, but operating profit posted a loss of 2.9 billion KRW. This is a poor performance amid the growing online shopping market. While the domestic online shopping mall transaction amount announced by Statistics Korea increased by 26% and 25% year-on-year in May and June respectively, Cafe24's Q2 shopping mall transaction amount (GMV) increased by only 14.1% during the same period.

Kim Chang-kwon, a researcher at Mirae Asset Securities, explained, “The fashion category showed weakness in the Q2 online shopping market,” and “Costs also increased due to overseas expansion and the expansion of fulfillment infrastructure managing warehouse operations, packaging, and delivery at logistics centers.” In fact, operating expenses, which were around 57.8 billion KRW in Q2 last year, expanded to 72.5 billion KRW in Q2 this year.

Although expectations for cooperation with Naver are high, the lack of concrete plans is also a source of concern. While there is clearly potential for business expansion in the mid-term, it remains only a prospect. Lee Jin-hyup, a researcher at Yuanta Securities, said, “The alliance between Cafe24 and Naver is certainly positive,” but added, “Since no concrete cooperation plan has been presented yet, it is necessary to confirm the cooperation plan rather than having premature expectations.”

(Provided by Mirae Asset Securities)

Despite the cooperation news with Naver, Cafe24's earnings forecasts have also been revised downward. Mirae Asset Securities lowered this year's operating profit forecast for Cafe24 from 9 billion KRW to 2 billion KRW, a 77.8% decrease. Next year's operating profit is also expected to drop 40% from 15 billion KRW to 9 billion KRW. Kim Chang-kwon of Mirae Asset Securities explained, “Profitability is expected to continue deteriorating in Q3 this year due to sluggish growth and increased costs.”