[Click eStock] Kakao Takes a Breather in Q1, Gears Up to Accelerate Again from Q2

Slight Decline in Sales and Operating Profit Compared to Previous Quarter... "A Breather Due to COVID-19"
Operating Profit Up 147% Compared to Same Period Last Year
"Fundamental Growth Drivers Still Valid... Growth Expected to Continue"

[Asia Economy Reporter Minwoo Lee] Kakao's first-quarter earnings this year slightly decreased compared to the previous quarter. However, this is analyzed to be only due to a temporary increase in marketing expenses and the off-season for advertising, not a fundamental weakening of growth drivers. From the second quarter, growth is expected to resume in various sectors, including KakaoPay's expansion into the securities business.

On the 13th, Ebest Investment & Securities forecasted that Kakao would achieve sales of 852.6 billion KRW and an operating profit of 68.4 billion KRW in the first quarter of this year. Compared to the previous quarter, sales decreased by 1.7% and operating profit by 13.8%. This marks a downturn after three consecutive quarters of improvement. However, this is considered a temporary 'breather,' and the growth drivers remain intact. Since the beginning of the year is the advertising off-season compared to the end of the year, a decline in advertising performance on the portal and KakaoTalk was already anticipated. The decrease was slightly larger due to the impact of the novel coronavirus infection (COVID-19), but the growth drivers were not damaged at all. In fact, compared to the same period last year, sales increased by 20.7% and operating profit by 147.4%.

Therefore, Kakao's earnings outlook from the second quarter onward remains bright. The advertising business model within KakaoTalk, Talk Biz Board, is expected to continue high sales growth due to increased demand and supply driven by higher click-through rates, expanded inventory, and rising unit prices. KakaoPay is also maintaining high growth in transaction volume each quarter, and with the acquisition of Baro Investment & Securities securing a securities business license, synergy creation is possible through linkage with deposit/loan services and securities business on KakaoPay/KakaoTalk. Researcher Seong Jonghwa of Ebest Investment & Securities stated, "Other positive factors include the establishment of a digital insurance company through a partnership with Samsung Fire & Marine Insurance and reduced pump banking fees due to the application of open banking." He also noted, "Commerce and content sectors, mobility business, and subsidiary initial public offerings (IPOs) are also scheduled positive factors."

For these reasons, Ebest Investment & Securities has given Kakao a 'Buy' investment rating with a target price of 213,000 KRW. Researcher Seong explained, "The 7% decrease in the target price is not due to a fundamental value downgrade but reflects temporary earnings impacts related to COVID-19, market adjustments, and the resulting correction in the valuation gap." He added, "In the short term, it is impossible to be free from the market downturn caused by COVID-19, but in the medium term, it is advisable to use this as a buying opportunity."

This content was produced with the assistance of AI translation services.