Naver Surges on Dunamu Acquisition Prospects
Kakao Falters as KakaoTalk Overhaul Disappoints
The fortunes of Naver and Kakao, which have been vying for the top spot among artificial intelligence (AI) leaders, have diverged once again as the fourth quarter approaches. While Kakao, which had attracted significant market attention through its collaboration with OpenAI, stumbled due to a disappointing app overhaul, Naver made headlines by exploring the acquisition of the nation's largest virtual asset exchange.
The intriguing aspect of the two IT giants, collectively known as 'NaeKao' (Naver and Kakao), is that investors are sharply divided over which company will emerge as the leading AI stock. In August of this year, foreign investors and institutions bought the most Kakao shares, with net purchases of 488.8 billion won and 385.8 billion won, respectively. In stark contrast, individual investors sold 854.2 billion won worth of Kakao shares, making it the top stock for net selling. Instead, individuals swept up more than 1 trillion won worth of Naver shares, absorbing all the selling from foreign and institutional investors.
This dynamic between individual investors and foreign/institutional investors began to shift in September. Last month, foreign investors sold 500.6 billion won worth of Naver shares (the second highest net selling), while individuals also joined in, realizing profits and selling 494.4 billion won worth of Naver shares. These shares were absorbed by institutions, which recorded a net purchase of approximately 1.0684 trillion won.
Both companies, which reached record highs in June on the back of expectations for increased AI investment by the new government and the legalization of won-based stablecoins, have since seen their stocks correct by more than 25% in the second half of the year, entering a period of consolidation. Naver was the first to break the silence. On September 25, news broke that its subsidiary, Naver Financial, was pursuing a comprehensive stock swap with Dunamu, the operator of Upbit, Korea's largest virtual asset exchange, sending Naver's share price soaring by more than 10%. Dunamu, which is unlisted, also hit its highest price of the year in over-the-counter trading.
The prospect of a partnership between the world's third-largest virtual asset exchange operator and Korea's top fintech company has prompted a wave of optimism for Naver in the securities market. If the merger between Naver Financial and Dunamu is successful, Naver will gain momentum to take the lead in the stablecoin competition, which is currently the hottest topic in the financial sector. This has sounded an alarm for Kakao, which had been projected as the biggest beneficiary of the legalization of won-based stablecoins and was envisioning a bright future.
Lee Jieun, a researcher at Daishin Securities, commented, "Naver's second-quarter results showed a slowdown in search advertising revenue growth, and there are concerns that operating profit in the commerce segment will fall short of expectations in the second half, despite higher commission rates. In this context, where the growth momentum of its core business is weakening, the business collaboration with Dunamu is significant not just for short-term performance improvement, but for securing long-term growth engines and leadership."
While Naver has seen its stock surge on the back of the potential acquisition of Dunamu, Kakao has experienced a stagnant third quarter. At its annual developer conference 'if(kakao)25' held last month, Kakao unveiled a major overhaul of its flagship messenger, KakaoTalk, for the first time in 15 years. However, a flood of user complaints caused the share price to fall below 60,000 won.
Lee Hyojin, a researcher at Meritz Securities, stated, "If the update remains stalled due to user backlash, there is a high likelihood that expectations for fourth-quarter earnings will be revised downward. Moreover, this month, the founder issue is also at play, making this an unfavorable period for Kakao." Previously, Kim Beomsoo, the founder and chairman of Kakao's Management Reform Committee, was indicted for alleged price manipulation during the acquisition of SM Entertainment in February 2023, and in August, prosecutors sought a 15-year prison sentence and a 500 million won fine. The first trial verdict is scheduled for October 21.
However, some analysts believe there is still an opportunity for a turnaround. Starting this month, Kakao will sequentially release the results of its on-device AI projects, beginning with KakaoTalk equipped with OpenAI's GPT-5. Lee Changyoung, a researcher at Yuanta Securities, said, "The KakaoTalk overhaul is expected to drive increased traffic, leading to improved platform profitability such as higher advertising revenue. Kakao is also expected to gain a first-mover advantage in AI services, including its self-developed 'Kanana' and its AI agent in partnership with ChatGPT."
Kim Hyeyoung, a researcher at Daol Investment & Securities, who selected Kakao as her top pick in the internet sector, commented, "Since the KakaoTalk overhaul was completed at the end of September, the impact on advertising revenue growth will be reflected from the fourth quarter. On-device AI will also undergo a closed beta test (CBT) in October, with full-scale monetization expected to begin in 2026." Kakao's third-quarter revenue this year is estimated at 2.0627 trillion won, up 7.4% year-on-year, and operating profit is projected at 152.1 billion won, up 16.5%, in line with market expectations.
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