Signal of Growthism's Decline... Naver and Kakao Market Cap Drops by 25 Trillion Won 'Plunge'

[Asia Economy Reporter Lee Seon-ae] The combined market capitalization of Naver and Kakao, considered representative growth stocks in Korea, has evaporated by more than 25 trillion won since the beginning of this year. This is interpreted as the investment appeal of growth stocks gradually diminishing due to valuation burdens caused by inflationary pressures and rising interest rates. Many forecasts suggest that the recovery of growth stocks will be slow in a stock market environment where value stocks are gaining attention.

According to the Korea Exchange on the 1st, Naver's stock price fell 24.31%, from 378,500 won at the end of last year to 286,500 won on the most recent trading day, April 29. During the same period, Kakao's stock price also dropped 20.09%, from 112,500 won to 89,900 won.

Naver and Kakao recorded much poorer returns than the KOSPI, which fell 9.49% since the beginning of the year. Due to the stock price decline, Naver's market capitalization decreased from 62.0926 trillion won at the end of last year to 47.001 trillion won on April 29, while Kakao's market capitalization shrank from 50.1508 trillion won to 40.1197 trillion won.

In terms of common stock-based KOSPI market capitalization rankings, Naver dropped from 3rd place at the end of last year to 5th place currently, and Kakao fell from 5th to 7th place, each falling two ranks. During this period, the combined market capitalization of Naver and Kakao decreased by 25.1236 trillion won, from 112.2434 trillion won to 87.1198 trillion won.

As dominant domestic platforms and representative growth stocks, Naver and Kakao's stock prices surged sharply riding the low-interest-rate environment and liquidity-driven market after the COVID-19 pandemic. Last year, Naver reached an intraday high of 465,000 won on July 26, and Kakao hit an intraday high of 173,000 won on June 24, both marking their highest prices since listing.

However, since last fall, the Federal Reserve's tightening moves accelerated, and domestic regulatory issues combined to slow the rally. Growth stocks are stocks that focus on the future rather than the present. When interest rates are low, the discount rate on future earnings is low, justifying a high valuation relative to earnings. As global growth stocks entered a correction due to valuation burdens from inflationary pressures and rising interest rates, Naver and Kakao's momentum also weakened. Meanwhile, negative factors such as online platform regulatory issues raised by market regulators and political circles, and discounts related to Kakao's key subsidiary listings, also emerged consecutively.

Moreover, from the first quarter of this year, the slowdown in growth is being confirmed in earnings. Naver's consolidated operating profit for the first quarter, announced on April 21, was 301.8 billion won, up only 4.5% from the first quarter of last year, falling short of market expectations. After the 'earnings shock' level first-quarter results, Naver's stock price plunged to a 52-week low for three consecutive trading days, falling below the 'support level' of 300,000 won.

Kim Jin-gu, a researcher at Kiwoom Securities, said, "Naver enjoyed high growth in the commerce sector during the COVID-19 environment in 2020-2021," adding, "However, it is expected to be affected by the slowdown in e-commerce market growth following the entry into the 'With COVID' phase." He also said, "In the short term, earnings growth may be limited," and lowered Naver's target stock price from 430,000 won to 400,000 won.

Regarding Kakao, which has not yet announced its first-quarter earnings, there is also a high possibility of disappointing results below market expectations. Oh Dong-hwan, a researcher at Samsung Securities, said, "Since recent macroeconomic uncertainties are affecting Kakao's earnings as well, it is necessary to adjust earnings expectations for the first half of the year," lowering Kakao's target stock price from 150,000 won to 140,000 won ahead of the earnings season. He explained, "Due to the economic slowdown, growth in advertising, commerce, and Pay sales is expected to slow in the first quarter, and operating profit is inevitably expected to decline due to increased costs such as labor expenses," adding, "Considering this, the operating profit estimate for this year has been lowered by 16%, from the previous 1.025 trillion won to 861 billion won."

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