[Click eStock] KTB "Kakao Target Price Down 12% Considering Regulatory Risk"

[Asia Economy Reporter Ji Yeon-jin] Korea Investment & Securities announced on the 17th that it has lowered the value of KakaoTalk to 7 trillion KRW from the previous estimate, considering the highlighted regulatory risks for Kakao, and consequently reduced the target stock price from 180,000 KRW to 160,000 KRW, a 12.5% decrease.

Jung Ho-yoon, a researcher at Korea Investment & Securities, said, "Although it is true that short-term uncertainties related to regulations have increased, the long-term growth story of internet companies has not been damaged," adding, "This is a time to carefully consider the valuation floor and the timing for buying."

As regulatory risks on platforms have become significantly highlighted, Kakao, which has expanded its business into various fields, is facing headwinds. Kakao has proposed win-win measures such as establishing a 300 billion KRW fund to support small business owners and converting K Cube Holdings into a social enterprise.

In particular, Kakao Mobility, which had been a bigger issue, has proposed solutions such as terminating some services that infringe on local businesses, like flower and snack delivery, and lowering the prices of dispatch benefit plans and intermediary fees for designated drivers to promote coexistence with taxi and designated driver services.

As most platforms like messengers and SNS have done, platforms eventually become monopolistic with only one or two surviving. Kakao's services, including mobility and fintech, began to generate revenue and establish profit models in earnest since last year, during which coexistence issues emerged.

Researcher Jung said, "The important thing going forward is balance," adding, "It is necessary to observe to what extent the profit models of mobility and fintech, which are currently contentious, will be adjusted."

However, he stated, "Even assuming that regulatory issues against Kakao come from all directions, I believe Kakao's bottom value is around 55 trillion KRW (stock price basis 127,000 KRW)," adding, "The current stock price level has sufficiently declined when considering valuation alone. The current regulatory noise will suppress the internet sector at least until the National Assembly audit schedule ends in October, but like Naver, Kakao has fallen to a level where its valuation attractiveness is highlighted, so it is necessary to carefully identify the timing and price range for buying."