Market Cap Plummets by 11 Trillion This Year... Kakao's Scream

Kakao Group Stocks Including Kakao Bank, Pay, and Games Fall Together
11.27 Trillion KRW Decrease in One Week

[Asia Economy Reporter Song Hwajeong] Kakao Group stocks have shown a sluggish trend since the beginning of the year, with their market capitalization already evaporating by more than 11 trillion KRW. The stock prices were dragged down by a combination of negative factors including concerns over U.S. interest rate hikes leading to weakness in tech stocks, management moral hazard controversies, and poor earnings performance.

According to the Korea Exchange on the 7th, based on the closing prices of the previous day, the combined market capitalization of Kakao, KakaoBank, KakaoPay, and KakaoGames decreased from 108.2432 trillion KRW at the end of last year to 96.973 trillion KRW, a drop of 11.2702 trillion KRW in just one week. All four stocks saw a decline in market capitalization. Kakao’s market cap, which was over 50 trillion KRW at the end of last year, fell to the 44 trillion KRW range, causing its KOSPI market cap ranking (excluding preferred shares) to drop two places from 5th to 7th. KakaoBank’s market cap decreased by about 1.5 trillion KRW, KakaoPay’s by about 3 trillion KRW, and KakaoGames plummeted 14% the previous day, losing 1.3 trillion KRW compared to the end of last year.

Various negative factors have held back Kakao Group stocks. Kakao showed weakness as tech stocks declined amid tightening issues such as U.S. interest rate hikes. Seong Jonghwa, a researcher at Ebest Investment & Securities, analyzed, "Considering that the valuation discount factor for growth stocks due to interest rate hikes is in effect, it is realistic to take a long-term approach until new platform-centered next momentum is secured or, in the case of existing platform businesses, more evolved and matured momentum is obtained."

Regulatory concerns are also negative for stock prices. Oh Donghwan, a researcher at Samsung Securities, said, "Government regulatory issues on online platform companies will continue to have an impact this year. With the passage of the Online Platform Fairness Act and User Protection Act in the National Assembly postponed to this year, and the ruling party’s presidential candidate advocating stronger regulations on online platforms, it will be difficult for market investment sentiment toward platform companies to recover at least until the presidential election."

KakaoPay’s management has been embroiled in a ‘mukjwi controversy’ after executives sold large amounts of shares following the listing. KakaoPay disclosed that eight executives, including current CEO Ryu Youngjun and next CEO Shin Wongeun, sold approximately 440,000 shares acquired through stock options on December 10 last year. They disposed of about 90 billion KRW worth of shares just over a month after listing. The stock price, which was in the 200,000 KRW range in early last month, has now fallen to around 150,000 KRW. Although CEO Ryu expressed an apology during an internal meeting on the 4th, the labor union continues to demand the withdrawal of his appointment, and negative sentiments regarding management moral hazard are not easily subsiding. The union stated, "It will be difficult for the management to escape moral responsibility that led to the National Assembly discussing the ‘KakaoPay Mukjwi Prevention Act,’" demanding the withdrawal of CEO Ryu’s appointment and the establishment of regulatory measures on management stock option sales at the headquarters level.

KakaoGames’ stock price declined as its fourth-quarter earnings are expected to fall significantly short of market expectations. According to Ebest Investment & Securities, the average daily sales of KakaoGames’ ‘Odin’ in the fourth quarter are expected to drop to the mid-1 billion KRW level, nearly 60% lower than the previous quarter. Researcher Seong said, "If KakaoGames’ fourth-quarter earnings are viewed without assuming the consolidation of Lionheart Studio and based on the existing earnings structure, they will be not only very poor compared to the previous quarter but also significantly below market expectations."

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