[Click eStock] "AI Service Expectations... Kakao, Buy Investment Opinion"

Target Price Revised Downward

IBK Investment & Securities maintained a buy rating on Kakao on the 21st, stating that "quarterly earnings are expected to improve from the first quarter of this year as the bottom." The target price was lowered from the previous 65,000 KRW to 59,000 KRW.

Seunghoon Lee, a researcher at IBK Investment & Securities, explained, "The target price for Kakao was calculated by applying the upper limit of the price-to-book ratio (PBR) of 2.5 times over the past two years to this year's expected book value per share (BPS)."

Lee said, "The platform is expected to grow from the second quarter with the KakaoTalk revamp and artificial intelligence (AI) services," adding, "If the Chinese ban on Korean content (Hanhanryeong) is lifted, performance improvements in the content sector, including SM Entertainment, can also be expected. From the second half of the year, both top-line growth and profitability improvements will be quickly reflected."

Kakao plans to introduce a 'Discovery Area' service this year. By adding a feed-type content area, users are expected to consume a wide variety of content for extended periods. Lee said, "We are designing the content placement to reduce user fatigue and naturally incorporate advertisements," adding, "It will include diverse content from professional content providers (CPs) and consider business profile features for influencers and entrepreneurs. With increased KakaoTalk dwell time and advertising space, there is a high possibility of top-line growth."

AI services are also an anticipated factor. Four services?generative search, AI Mate, Kanana, and a collaboration service with OpenAI?are scheduled to be launched this year. Lee said, "First, with generative search, AI will summarize information and provide results, and we plan to add search advertising to monetize it," adding, "Through AI Mate, by linking shopping and local services, we expect transaction volume to increase by supporting gift recommendations and place searches."

He continued, "Through the new Kanana service, AI functions that assist with scheduling in group chat rooms will be equipped, and a beta version will be released in the first half of the year," noting, "Finally, we plan to unveil a jointly developed service with OpenAI within the year."