[Click eStock] "Kakao, Growth Potential Slows... Investment Rating Downgraded"

[Asia Economy Reporter Kwon Jae-hee] Shinhan Investment Corp. downgraded its investment opinion on Kakao to 'Trading Buy' on the 13th, maintaining the target price at 70,000 KRW.

Kakao's operating profit for the last quarter was 100.4 billion KRW, in line with market expectations.

By business segment, Talk Biz reflected the impact of the economic downturn, decreased demand for Biz Board advertisements, and a data center fire. As advertisers shift demand to more efficient products, display advertising (DA) revenue is expected to remain negative this year. Gross Merchandise Volume (GMV) of transaction-type products grew by 7%, and the premium lineup of the Gift feature is expanding. However, commerce is also expected to face challenges in achieving high growth due to reduced consumer spending power.

Other platforms saw a 25% year-on-year decline due to decreased advertising on the Daum portal. Mobility growth significantly slowed despite the endemic and parking business, with plans to expand into vehicle management and vehicle sales in the future. Pay recorded a transaction volume of 30.9 trillion KRW in the last quarter, but revenue and profit fell short of consensus, while cloud and blockchain faced a tough base effect.

The gaming segment struggled due to the absence of new releases and declining sales of existing titles including 'Umamusume.' New releases are expected to resume this year starting with 'Eversoul.' The music segment grew 14% year-on-year following the endemic due to expanded artist performances.

The story and media segment saw significant improvement in profit margins through marketing efficiency, but due to slowing growth in the comics market and reduced marketing, substantial top-line growth is expected to be difficult this year.

Researcher Kang Seok-oh of Shinhan Investment Corp. stated, "Due to reduced upside potential following recent stock price gains, we downgrade Kakao's investment opinion from 'Buy' to 'Trading Buy.' It is the most sensitive to the economic downturn within the sector, and short-term growth is expected to be difficult due to weak high-margin advertising and commerce caused by decreased demand."