Internet Platform Stocks Spending a Cold Year-End

Growth Slowdown Due to Base Effect Unavoidable
E-commerce Market Shrinks, Lacking Short-term Momentum

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[Asia Economy Reporter Minwoo Lee] The stock prices of leading domestic internet platform companies such as Naver (NAVER) and Kakao continue to struggle. Although the long-term growth trends in e-commerce and new industries are expected to persist, there is an analysis that short-term upward momentum is lacking, with growth slowing from the fourth quarter of this year.

As of 10:12 AM on the 20th, Naver's stock price recorded 376,500 KRW, down 2.08% from the previous trading day. This is about a 3.5% decline compared to the closing price on the 1st. At the same time, Kakao also fell 2.13% to 115,000 KRW compared to the previous trading day. Compared to the closing price on the 1st, this is a significant drop of about 6.1%. This contrasts with the KOSPI, which rose 1.5% during the same period. Since the beginning of this month, large-cap stocks such as semiconductors, automobiles, and bio have led the rise, while these internet platform stocks have been left out.

The slowdown in the growth of the e-commerce market is interpreted as having dampened performance expectations. Unlike last year, the expansion of vaccination and offline economic activities have slowed the growth rate of the global e-commerce market. Sohe Kim, a researcher at Hanwha Investment & Securities, explained, "In the fourth quarter of this year, the domestic e-commerce market transaction volume is expected to increase by only 15.2% year-on-year, which will lower the e-commerce sales growth rates of Naver and Kakao. Due to the base effect of rapid growth last year, a slowdown in growth is inevitable, and short-term stock price momentum is bound to weaken."

It is expected that the companies will post somewhat stable earnings in the fourth quarter of this year. Hanwha Investment & Securities forecasted that Naver will record an operating profit of 394 billion KRW in Q4. This is in line with the market consensus of 392.9 billion KRW compiled by financial information analysis firm FnGuide. In Kakao's case, operating profit is expected to be 176.9 billion KRW, about 18% below the consensus of 210.2 billion KRW. Due to one-time performance bonuses paid by affiliates such as Kakao Ventures and Kakao Pay, labor costs are expected to increase by 9% compared to the previous quarter, leading to a decline in operating profit margin.

Researcher Kim said, "In the mid-to-long term, growth in advertising and commerce will continue, and the value of the content business will rise, but the growth rate may temporarily slow down until the first half of next year. The addition or expansion of new revenue models will also be limited."