Growth Stocks Are Said to Be Fading... Have Naver and Kakao Hit Bottom?

[Asia Economy Reporter Kwon Jae-hee] Representative growth stocks Naver (NAVER) and Kakao are showing signs of a rebound. Due to global interest rate hikes, the attractiveness of growth stocks had declined, causing their stock prices to stagnate for a while. However, as the correction deepened, valuation appeal has increased, analysts say.

According to the Korea Exchange on the 5th, on the 3rd, Naver's stock price closed at 287,500 KRW, down 0.86% from the previous trading day, while Kakao closed at 85,700 KRW, up 2.39%. Over the past week (May 30 to June 3), Naver and Kakao's stock prices rose by 6.09% and 3.88%, respectively, over five trading days.

As representative growth stocks, Naver and Kakao's stock prices had shown sluggish trends. Due to the ongoing global interest rate hike trend since the end of last year and poor performance in the first quarter of this year, their stock prices struggled to gain momentum. Since the beginning of this year until the 3rd, Naver's stock price fell by 23.53%, and Kakao's dropped by 25.15% during the same period.

The securities industry evaluates that since Naver and Kakao have undergone a long-term correction, their valuation appeal has increased. Although the growth of the content business in the second half of the year will determine the outcome, the growth potential of both companies remains solid, so it is worth cautiously approaching from a buying perspective.

The securities industry predicts Naver's operating profit growth rate this year to be 14.24%, with sales expected to increase by about 21.8% compared to the previous year.

So-hye Kim, a researcher at Hanwha Investment & Securities, said, "Predicting the peak of internet companies' stock prices is meaningless, but the bottom can be somewhat judged," adding, "Naver's PBR (price-to-book ratio) and PER (price-to-earnings ratio) valuations have dropped to their lowest levels since listing and to levels seen at the early stage of the COVID-19 pandemic."

Regarding Kakao, the securities industry forecasts a sales growth rate of 26.2% and an operating profit growth rate of 40.9% this year.

In particular, the content sector is expected to show high growth. Kakao's content business sales are projected to reach 3.7 trillion KRW this year, a 31% increase compared to last year. Especially in the gaming sector, a 51.1% increase in sales is anticipated.

However, the performance of subsidiaries and the degree of platform regulation by the new government are analyzed to be the biggest variables affecting Kakao's future performance and stock price.

Ho-yoon Jung, a researcher at Korea Investment & Securities, said, "If the new government's platform regulations are generally eased, Kakao, which operates various businesses domestically, will benefit the most," adding, "How much the growth of subsidiaries can contribute to Kakao's overall operating profit is also an important investment point."