Kakao Eyeing 4th Place in Market Cap, Becoming a Target for Short Selling?

57.8%↑ Since the Beginning of the Year Based on Closing Price
Record High of 125,000 Won
Short Selling Transactions 94.4 Billion Won, 3rd Overall
Foreign and Institutional Buying Pressure Key to Defense

[Asia Economy Reporters Song Hwajeong and Lee Minwoo] Kakao recorded its highest closing price ever on the 27th. With continued high growth centered on commerce and advertising, and positive factors such as the turnaround to profitability in new businesses and subsidiary initial public offerings (IPOs) ahead, it is analyzed that favorable investor sentiment will persist. However, there are concerns that short selling volumes are increasing, so caution is advised.

According to the Korea Exchange on the 28th, Kakao recorded 125,000 KRW the previous day, setting a new all-time high closing price. When converted to the pre-5-for-1 stock split price on the 15th of last month, this corresponds to 625,000 KRW. After closing at 120,500 KRW on the first day of the stock split, the price fell to 109,000 KRW by the 14th, causing the stock to stagnate for about a month before rebounding again.

Notably, the rise is remarkable even compared to competitor Naver (NAVER). Kakao’s stock price rose 57.8% year-to-date as of the previous day’s close, more than double Naver’s 22.2% increase over the same period. During this time, market capitalization surged by about 20 trillion KRW. Thanks to this, Kakao re-entered the top 5 in domestic stock market capitalization rankings (excluding preferred shares).

The aggressive revenue growth in KakaoTalk-based ‘Talk Biz’ sectors such as advertising and commerce, along with improved profit margins despite overall increases in costs like labor and marketing, are seen as key factors. In fact, over the past year including Q1 of this year, Kakao’s year-over-year revenue growth averaged 40.3% per quarter, while operating profit increased by an average of 103%. The operating margin, which was 12.5% in Q1 2021, is expected to improve to 16.1% by Q4. Hwang Seungtaek, a researcher at Hana Financial Investment, explained, “Growth driven by price increases in Kakao Bizboard continues, and transaction volume growth is expected in the commerce sector. Additionally, structural improvements are possible with anticipated performance turnarounds in new business areas such as Kakao Pay and Kakao Mobility.”

Kakao’s sustained stock price strength has also boosted its market capitalization ranking. Kakao surpassed Samsung Biologics to rise to 5th place in market cap the previous day. After the stock split and re-listing last month, Kakao initially reached 5th place but fell to 7th without stabilizing. Recent strength has seen it recover 6th and 5th places consecutively, raising expectations that it could reach 4th place.

Especially, LG Chem, currently ranked 4th, has seen its stock price decline due to a surge in short selling, narrowing the gap between the two companies. When Kakao briefly regained 5th place on the 4th of this month, Kakao’s market cap was 51.2599 trillion KRW, while LG Chem, then 3rd, was 64.9449 trillion KRW, a gap of over 13 trillion KRW. As of the previous day’s close, Kakao’s market cap was 55.4821 trillion KRW and LG Chem’s was 56.6857 trillion KRW, narrowing the gap to about 1.2 trillion KRW.

LG Chem’s stock plunged sharply on the 25th after Credit Suisse (CS), a foreign investment bank, downgraded its investment opinion and target price. Short selling also increased significantly. According to the Korea Exchange, LG Chem’s short selling volume jumped from 11,363 shares on the 25th to 76,245 shares on the 26th, and further increased to 105,448 shares the previous day. The transaction amount surged more than eightfold from 10.1 billion KRW on the 25th to 84.4 billion KRW the previous day.

Kakao is also seeing an increase in short selling volume, reflecting expectations of a stock price decline. As of the previous day, Kakao’s short selling volume was 94.4 billion KRW, ranking 3rd overall. The short selling ratio was 10.36%, ranking 29th overall. However, steady buying from foreigners and institutions is stabilizing supply and demand, and with continued earnings growth momentum, it is assessed that Kakao has the fundamental strength to withstand short selling.

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