[New Market Cap Ranking] ④ ‘Overvaluation Controversy’ Followed by ‘System Outage’... Will Leading Growth Stocks Naver and Kakao See Brighter Days?

Editor's NoteDomestic stock markets have continued to underperform this year. As central banks around the world have been raising benchmark interest rates one after another to combat inflation, funds have been flowing out of the stock market. The KOSPI, which was above the 3,300 level last July, has fallen to the 2,300 level. It has dropped nearly 1,000 points over the past 16 months. Coupled with the semiconductor industry's downturn, Samsung Electronics, the leading stock in the domestic market, has also struggled. The U.S. Federal Reserve (Fed) expects the final peak of the benchmark interest rate to be higher than previously forecast after the November Federal Open Market Committee (FOMC) meeting. The stock market, which had continued its upward trend based on asset liquidity until last year, is likely to remain sluggish next year. It is difficult to predict the future without understanding the current changes. Asia Economy conducted a full survey of changes in market capitalization of corporate groups with over 1 trillion won in market cap in the domestic stock market. On July 6 last year, when the KOSPI hit an all-time high closing price, there were 219 corporate groups with market caps over 1 trillion won, but this number decreased to 164 as of last month’s 31st. We examine the changes in rankings of top market cap corporate groups and the details of market cap increases and decreases.

[Asia Economy Reporter Lee Myunghwan] Naver and Kakao, the representative growth stocks of the domestic stock market, have both seen their market capitalizations halved. These companies, which experienced explosive growth during the COVID-19 pandemic, have been hit hard by tightening monetary policies. Moreover, large-scale adverse events such as service outages have further dimmed their outlook.

Over the past year, during which the stock price dropped more than 1,000 points from its peak, the combined market capitalization rankings of Naver and Kakao affiliates each fell by two places. Naver slipped from 6th to 8th place, while Kakao dropped from 5th to 7th.

The market capitalizations of the two corporate groups have decreased by more than half. During this period, Naver’s market cap fell by nearly 60%, and the combined market cap of Kakao affiliates dropped by 50%. However, considering that two major financial affiliates of Kakao, Kakao Pay and Kakao Bank, were newly listed during the aggregation period, the impact of the stock price decline is interpreted to be even greater.

These so-called ‘giant platforms’ with monopolistic positions entered a full-fledged downtrend as the U.S. Federal Reserve (Fed) raised benchmark interest rates consecutively and tightened monetary policy. As the domestic stock market weakened last month, Naver and Kakao repeatedly hit 52-week lows almost daily. Kakao’s financial affiliates also drew downward curves amid excessive overvaluation controversies and near ‘sell’ recommendations from securities firms. In particular, Kakao Pay’s stock price has plummeted more than 85% from its peak since listing.

The unprecedented adverse event of a full service outage last month further accelerated the stock price decline. On the 15th of last month, a fire at the SK C&C data center in Pangyo paralyzed most of Kakao’s major services, including KakaoTalk, for nearly 12 hours. Naver, which also had some servers in the same data center, temporarily suspended services such as shopping. Securities firms have assessed that if the scale of customer compensation for Kakao increases due to this incident, it could have a short-term impact on earnings.

In addition, Kakao has faced public backlash over former Kakao Pay CEO Ryu Young-jun’s stock option exercises and controversies over aggressive business expansion. Naver announced the acquisition of the U.S. fashion peer-to-peer platform Poshmark, but the market perceived it as negative news, leading to a short-term sharp decline in its stock price.

As the stock prices of the two companies continued to fall daily, they announced shareholder return policies to boost stock prices, but the impact was limited. Kakao announced plans to conduct about 300 billion won worth of treasury stock cancellations this year. Kakao Bank, an affiliate, saw 12 executives purchase a total of 50,685 shares of treasury stock over two days on the 6th and 7th of last month, and Kakao Pay’s executives, including CEO Shin Won-geun, are also reportedly buying treasury shares.

The securities industry’s outlook is that it will be difficult for the two companies to rebound in the near term. Kim So-hye, a researcher at Hanwha Investment & Securities, said, “Although the recently sharply declined stock price level is at the lowest valuation, making it approachable, there is insufficient reason to maintain weight when some rebound occurs. Due to recent events such as the Poshmark acquisition and the KakaoTalk outage, there remains the possibility of further downward revisions to earnings forecasts, making their relative attractiveness lower compared to other sectors.”

Meanwhile, the market capitalization rankings of internet and IT stocks excluding Naver and Kakao also fell significantly. During the same period, NCSoft dropped 11 places from 18th to 29th, and Netmarble fell 13 places from 19th to 32nd.