[Click eStock] Kakao, Attractive Valuation... Need to Watch Regulations

[Asia Economy Reporter Lee Seon-ae] Korea Investment & Securities maintains a buy rating and a target price of 160,000 KRW for Kakao as of the 13th. The target price is based on an implied 12-month price-to-earnings ratio (PER) of 69.2 times.

Jung Ho-yoon, a researcher at Korea Investment & Securities, stated, "Even if negative assumptions related to regulations are made, the current stock price has fallen enough to present valuation appeal. However, if discussions related to regulations continue, it will take some time for sentiment to recover, so it is necessary to observe the direction of regulatory discussions over time for the time being."

Kakao's estimated Q3 revenue and operating profit are 1.6 trillion KRW (+47.7% YoY, +20.2% QoQ) and 192.5 billion KRW (+60.1% YoY, +18.4% QoQ), respectively. Thanks to the strong performance of commerce and advertising businesses, Talk Biz revenue is expected to reach 437.2 billion KRW (+49.4% YoY, +12.0% QoQ), while mobility and fintech revenue growth will continue, with other platforms estimated at 262.5 billion KRW (+59.2% YoY, +6.6% QoQ). Content revenue is projected at 807.9 billion KRW (+54.8% YoY, +36.8% QoQ), driven by Odin’s record-breaking success. Total operating expenses are expected to be 1.4 trillion KRW (+46.2% YoY, +20.5% QoQ), with a significant increase compared to the same period last year due to a sharp rise in game-related commission costs.

The national audit is underway, and Kakao’s stock price has sufficiently declined. From a valuation perspective alone, further declines in Kakao’s stock price are limited, but uncertainties remain. In particular, attention should be paid to the possibility of changes in the revenue models of key new businesses such as Kakao Mobility and Kakao Pay. The government has repeatedly emphasized that the commission rates for some services, including Kakao Mobility, are excessively high, and Kakao has acknowledged this, posing a risk of lower commission rates for core businesses. Kakao Pay is also still in friction with the Financial Services Commission regarding financial product sales, and there is a possibility that its revenue model may need partial revision.

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