[Click eStock] "Kakao, Excessively Withdrawn, Potential Remains Intact"

3Q Performance Solid... Advertising & Commerce Remain Strong
Webtoon and Entertainment Business Show Steady Growth... Expectations for Concrete Win-Win Plans

[Asia Economy Reporter Minwoo Lee] Kakao is expected to achieve solid performance in the third quarter as well. While its main cash generators, advertising and commerce, continue to show overwhelming growth rates, the content sector is also accelerating its expansion into overseas markets.

On the 27th, Hyundai Motor Securities maintained its 'Buy' investment rating and target price of 160,000 KRW for Kakao, citing these factors. The previous trading day's closing price was 119,500 KRW. Despite recent criticism over encroachment on local businesses due to its sprawling expansion, Kakao is still evaluated to have solid performance and growth potential.

Hyundai Motor Securities forecasted that Kakao will record consolidated sales of 1.4494 trillion KRW and operating profit of 226.1 billion KRW in the third quarter of this year. These figures represent increases of 31.7% and 88.1%, respectively, compared to the same period last year. The TalkBiz advertising and commerce business based on KakaoTalk is expected to grow more than 47% year-on-year despite a low base effect, while the entertainment business is also anticipated to maintain high growth of 23.4% year-on-year.

Researcher Hyunyong Kim of Hyundai Motor Securities explained, "The synergy is clearly accelerating as TalkBiz board customers choose Talk Channel as an additional marketing tool, and commerce is showing favorable trends due to strengthening luxury lineups and increased demand for gift certificates. The entertainment business is growing with Piccoma (webtoons) maintaining a significant lead, along with dramas and K-pop."

Regarding the issue of encroachment on local businesses, Kakao is also evolving by discussing additional detailed countermeasures. The coexistence plan announced on the 14th included the abolition of taxi call fees, reduction of proxy fees, withdrawal from some sectors such as flower and snack delivery, and the establishment of a 300 billion KRW coexistence fund over five years. Through this, the sales decline effect on Kakao Mobility is only about 5%, and since there was no announcement on withdrawal from core local business sectors, it was evaluated as insufficient to alleviate market concerns.

Researcher Kim said, "However, it is understood that additional withdrawals or specific coexistence plans for taxi and other small business-related sectors are under consideration. Also, the coexistence fund is being discussed in terms of specific procurement methods and usage, with most of the fund expected to be directly used to support small business owners."

Overseas expansion is also accelerating independently of regulatory issues. The proportion of overseas business is expected to increase sharply in the future. Researcher Kim said, "Kakao Webtoon has entered and settled in Asian regions starting with Thailand and Taiwan since June, and plans to target the U.S. webtoon market through the North American content platform 'Tapas.' With the merger of Melon Company improving profit resilience, an IPO in the second half of next year is also possible."