Too Much Momentum?... Naver and Kakao's Upward Trend 'Stalls'

[Asia Economy Reporter Koh Hyung-kwang] The stock prices of Naver and Kakao, the 'two-headed horse' of the domestic platform industry, have shown a decline for four consecutive trading days recently. This is interpreted as a result of profit-taking selling following a short-term surge. The growth potential of these two stocks, which have emerged as key players in the non-face-to-face (untact) industry since the outbreak of the novel coronavirus infection (COVID-19), is still considered valid by the securities industry.

According to the Korea Exchange on the 17th, in the KOSPI market the previous day, Naver and Kakao closed down 4.71% and 4.59%, respectively, compared to the previous trading day. Both stocks have been on a downward trend for four consecutive trading days until the previous day, during which Naver fell 8.0% and Kakao dropped 9.4%. Compared to their recent record highs, Naver declined 11.5% and Kakao 12.5%.

The decline is largely due to a flood of profit-taking selling following a short-term surge. Naver and Kakao emerged as untact stocks after the spread of COVID-19. In Kakao's case, the price rose from 127,000 won in mid-March to 368,000 won on the 6th, surging 189% in less than a month. Naver also rose 126% during a similar period, from 136,000 won to 308,000 won.

Foreign investors and institutions, major players in the domestic stock market, sold off large amounts of shares to realize profits. Over the recent four trading days, foreign investors and institutions net sold Naver shares worth 144.8 billion won and 125.6 billion won, respectively. During the same period, Kakao shares were sold off by 69.4 billion won and 143.3 billion won, respectively. Most of these sell orders were absorbed by individual investors.

The financial investment industry diagnosed the price decline of the two stocks as a temporary adjustment phase. Sung Jong-hwa, a researcher at Ebest Investment & Securities, said, "The recent few days of adjustment appear to be a healthy correction following a short-term price increase," adding, "It also seems to have been somewhat influenced by the debate over the 'new dot-com bubble' among U.S. tech companies."

As the COVID-19 situation prolongs, expectations for the growth of Naver and Kakao, representative platform companies in the untact industry, remain high. Kim Chang-kwon, a researcher at Mirae Asset Daewoo, said, "Following the first quarter, the second quarter is also expected to achieve an earnings surprise despite COVID-19," adding, "Although it is difficult to predict the short-term price trend after the adjustment, it is judged to be the beginning of value expansion in the long term." Lee Min-ah, a researcher at Daishin Securities, also said, "Expectations are high that companies related to the non-face-to-face industry will continue to benefit due to the prolonged COVID-19 situation," and predicted, "In the post-COVID era, the long-term growth potential of these companies will be further highlighted."

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