[Click eStock] "Kakao, Approaching with a Long-Term View Until the Next Momentum"

Short-Term Platform Stock Price Surge
EBest Investment & Securities "Kakao Target Price Lowered from 160,000 KRW to 135,000 KRW"

[Asia Economy Reporter Gong Byung-sun] Kakao is expected to post fourth-quarter results last year that fall short of market consensus. Since the short-term rise in platform-related stocks has also come to an end, a long-term approach will be necessary until the next growth momentum emerges.

On the 7th, Ebest Investment & Securities estimated Kakao's revenue at 1.7295 trillion KRW, a 40% increase compared to the same period last year, and operating profit at 110.1 billion KRW, a 26.4% decrease over the same period. These figures are 5.71% and 47.62% below the respective consensus estimates.

Kakao Games' Odin sales significantly underperformed expectations, which is interpreted as impacting Kakao's overall performance. However, excluding the special incentives related to the performance of the ‘K Cube No.1 Venture Investment Association Fund’ operated by subsidiary Kakao Ventures, the operating profit for the fourth quarter of last year is estimated to be around 160.1 billion KRW. This fund has invested in Dunamu, the operator of the domestic cryptocurrency exchange Upbit.

Seong Jong-hwa, a researcher at Ebest Investment & Securities, explained, “Kakao's fourth-quarter operating results last year are highly variable depending on the size of the special incentives for Kakao Ventures' fund managers and the amortization expenses related to the PPA (Purchase Price Allocation) for the additional acquisition of Lionheart Studio shares by Kakao Games,” adding, “Both the special incentives and PPA amortization expenses are yet to be finalized.”

The sharp rise in platform stock prices since COVID-19 also appears to have come to a pause. Therefore, securing the next momentum through new platforms or, in the case of existing platforms, preparing more advanced momentum will require a long-term approach.

Accordingly, Ebest Investment & Securities maintained its ‘Buy’ rating on Kakao but lowered the target price from 160,000 KRW to 135,000 KRW. The closing price on the previous day was 100,000 KRW.

Meanwhile, Ebest Investment & Securities highlighted the digital asset exchange business, which is expected to grow rapidly through non-fungible tokens (NFTs), as a new platform business. Researcher Seong said, “Kakao owns the mainnet Klaytn and the cryptocurrency KLAY based on it, as well as the cryptocurrency Borad specialized in trading game items,” adding, “The digital asset ecosystem that can utilize these is also very strong.”