[Click eStock] "Kakao, 4Q Operating Profit Revised Downward Compared to Expectations"

[Asia Economy Reporter Hwang Yoon-joo] Hyundai Motor Securities evaluated on the 4th that Kakao's fourth-quarter operating profit will be revised downward from the previous estimate. The investment opinion 'Buy' and the target stock price of 76,000 won were maintained.

Hyundai Motor Securities researcher Kim Hyun-yong stated, "Sales growth is expected to be somewhat lower due to the impact of the advertising market slowdown on the Talk Biz segment and the gap in new game releases and decline in existing sales in the game segment. Operating profit is also expected to be revised downward by 18% from the previous estimate due to the reflection of one-time compensation costs related to the fire incident and weak sales."

Hyundai Motor Securities forecast Kakao's fourth-quarter sales to increase by 10.5% year-on-year to 1.9722 trillion won, and operating profit to increase by 29.4% to 140.4 billion won.

Platform sales are expected to increase by 9.6% year-on-year to 1.1009 trillion won. Researcher Kim analyzed, "This is due to the high growth of 18.7% in the new business sector centered on mobility compared to last year," adding, "Mobility sales are expected to record high growth of 45.4% to 249.7 billion won, nearly matching the previous quarter's (+56.3%) growth." This is because, in addition to taxis, parking and designated driver services saw a surge in sales due to demand recovery and acquisition effects.

Meanwhile, Talk Biz segment sales are expected to increase by 6.4% year-on-year to 505.4 billion won. Advertising sales are expected to increase by only 5% due to the economic slowdown and delay in new inventory establishment, with a significant slowdown in growth compared to the previous quarter. Content sales are forecasted to increase by 11.7% to 871.2 billion won.

Researcher Kim predicted that performance and momentum will improve in the first half of 2023. He said, "This is due to the resumption of Talk Biz growth following the KakaoTalk revamp and expectations for Kakao Entertainment's content lineup," adding, "KakaoTalk will gradually introduce activation of Talk Biz Board ads in the Friends tab, opening of additional inventory, and strengthening of gift linkage, while also enhancing the Open Chat function. From the second quarter, meaningful Talk Biz growth rates are expected to reappear."

He continued, "In the content lineup, major works such as The Thief: The Sound of the Sword (NFLX/Kim Nam-gil), Gyeongseong Creature (NFLX/Park Seo-joon), The Worst Evil (DIS+/Ji Chang-wook), Victory (NFLX/Lee Byung-hun), and Night Walk (movie/Ha Jung-woo) are prominently featured."