Cafe24, Continuing Growing Pains... Improvement Expected from Second Half of the Year

[Asia Economy Reporter Song Hwajeong] Cafe24 continued to show growing pains as it recorded sluggish performance in the first quarter of this year. However, it is expected to improve in the second half of the year as the operating leverage effect becomes visible.

Cafe24 posted sales of 52.1 billion KRW and an operating loss of 2 billion KRW in the first quarter of this year. Sales increased by 4.7% compared to the same period last year, but it turned to an operating loss. Lee Jin-hyeop, a researcher at Yuanta Securities, analyzed, "The operating profit consensus (1.8 billion KRW) was significantly missed, resulting in poor performance," adding, "The main reason for the weak first-quarter performance was the impact of COVID-19, which caused sluggishness in advertising solutions, subsidiaries (Fastbox, JC Apparel), and the overseas direct-to-consumer sales segment." The sluggishness in the fashion and beauty categories led to reduced advertising capacity of the sellers and a slowdown in overseas direct-to-consumer responses, causing advertising solution and direct sales revenue to decline by 4% and 45%, respectively, compared to the previous year. Furthermore, the poor performance of fashion sellers also caused the subsidiary JC Apparel, which supplies products in the fashion category, to perform poorly. The product supply sales handled by JC Apparel grew by only 5%.

However, the cost aspect can be evaluated positively. The researcher said, "Labor costs, which hindered operating leverage, increased by only 1% compared to the previous quarter," and added, "Overall selling and administrative expenses excluding variable costs also increased by only 2.5% compared to the previous quarter, indicating that efforts to moderate investment speed are yielding results."

It is expected that the operating leverage effect will become visible in the second half of the year. Baek Joon-gi, a researcher at NH Investment & Securities, forecasted, "Cafe24’s consolidated sales for this year are expected to increase by 8.4% to 235.5 billion KRW, while operating profit is expected to decrease by 18.7% to 8 billion KRW," adding, "From the second half of the year, the sales growth rate is expected to exceed the cost growth rate, and the operating leverage of the core business will become visible." Researcher Baek added, "The transaction amount (GMV) growth rates in 2020 and 2021 were 16.1% and 16.2%, respectively, following the growth of the online shopping market," and "The consolidated sales growth rate is also expected to rebound from 8.4% to 16.6%, so performance improvement is expected to become visible with operating profit reaching 19.4 billion KRW in 2021."

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