Institutions Net Buy Naver Shares Worth 326 Billion KRW Over 3 Months... Expectations for Native AI Launch
Institutions and Foreigners Sell Kakao... SM Faces Stock Manipulation Allegations Amid Poor Earnings
The stock prices of Naver and Kakao, which had both been sluggish, have recently shown divergent trends. While Naver is aiming for a rebound ahead of the launch of its 'homegrown AI,' Kakao has yet to break free from its stagnant performance. In particular, Kakao's decline has been exacerbated by suspicions of market manipulation during the acquisition process of SM Entertainment (SM).
According to the Korea Exchange, Naver's stock closed at 204,500 won on the 20th. It rose 6.84% over the past three months (April 20 to July 20). In contrast, Kakao closed at 50,500 won, falling 13.82% during the same period. During this time, institutional investors, including pension funds (103.5 billion won), net purchased Naver shares worth a total of 325.9 billion won. Conversely, institutions (-135.7 billion won) and foreigners (-117.3 billion won) sold off Kakao shares. Only individual investors net bought 264.2 billion won.
Once called 'national stocks,' Naver and Kakao each recorded their highest prices since listing between June and August 2021, a period of unprecedented stock market boom. Since then, both have been unable to escape a downward trend for over two years. Naver has fallen about 56% from its peak (465,000 won), while Kakao has plummeted a staggering 71% from its peak (173,000 won). Although global big tech companies have rushed into the artificial intelligence (AI) ecosystem, launching various services, these two leading domestic IT companies, once considered growth stocks, have been criticized for falling behind in the AI ecosystem competition.
However, Naver is attempting a rebound. Recently, it decided to consolidate and merge services with poor business prospects such as 'Naver Office, Naver TV, Naver Now, and Naver Movies.' Additionally, it plans to unveil a homegrown AI named 'HyperCLOVA X' next month. Having maintained its position as the undisputed number one portal operator for the past 20 years since its founding, Naver is expected to apply its search know-how to AI. The market also expects Naver's annual operating profit to increase this year from last year's low point of 1.305 trillion won.
Jaemin Ahn, a researcher at NH Investment & Securities, said, "Concerns about Naver's market share decline due to big tech's AI offensive are exaggerated. We believe Naver has an advantage over global big tech in terms of possessing a Korean language-based database, and if it can create synergy effects with its various existing services based on this, it will be able to secure an edge in competition with global big tech." Jingu Kim, a researcher at Kiwoom Securities, also named Naver as the top pick in the internet and gaming sectors, stating, "Considering the enormous data value secured in key businesses such as search, commerce, and content, and the customized subscription economy-based services targeted to each user, there is enough reason to buy Naver even without confirming AI technology and services."
In contrast, Kakao's stock outlook remains uncertain. Although it has recently implemented self-rescue plans such as restructuring, its advertising revenue recovery is slower compared to competitors, and growth in content businesses like webtoons has stalled. The consolidated results reflecting the acquisition of SM are expected to be included from the second quarter, but due to increased related costs and amortization expenses, second-quarter earnings are forecasted to fall short of market expectations. Moreover, suspicions of market manipulation during the SM acquisition process have surfaced, adding to the negative factors. As financial authorities are investigating possible violations of the Capital Markets Act, sanctions may be imposed depending on the investigation results. Consequently, securities firms have been lowering Kakao's target price one after another recently.
Donghwan Oh, a researcher at Samsung Securities, said, "Due to increased AI investments and slow advertising revenue recovery, operating profit is expected to decrease by 6% this year compared to last year. We expect a full-scale earnings improvement to begin in 2024 when restructuring results become visible." Jeongihun Jung, a researcher at Eugene Investment & Securities, said, "The growth in advertising revenue through the KakaoTalk revamp expected at the beginning of the year has slowed due to macroeconomic factors. We are lowering Kakao's earnings estimates for the second half of this year and next year."
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