Kakao Halved... Leading Growth Stock Also Hampered by Interest Rate Hikes

Core Business Growth Expected to Slow
Labor and Marketing Expenses Continue
June 'Giant Step' Outlook Reaches 87%

[Asia Economy Reporter Hwang Yoon-joo] Kakao's stock price has halved in one year. While labor and marketing costs continue to rise, the outlook that the growth of its core businesses will slow is dragging down the stock price. The full-scale increase in the benchmark interest rate has also dampened investor sentiment toward growth stocks.

According to the Korea Exchange on the 9th, Kakao closed at 84,300 KRW in the previous trading session. This is a 50.2% drop from last year's peak (169,500 KRW on June 23) and a 26.3% decline compared to the same period last year (114,500 KRW on May 7).

The reason for Kakao's weak stock performance is the expectation that the growth of its core businesses, advertising and commerce, will fall short of expectations. In the first quarter of this year, Kakao's operating profit was 158.7 billion KRW, a 0.7% increase year-on-year, and revenue was 1.6517 trillion KRW, up 31.3%. Although these appear to be strong results, the revenue growth rate fell short of consensus by 5.1%.

What the market focused on was the growth rates of core businesses such as Talk Biz, Pay, and Games. Talk Biz revenue increased by only 23.4% year-on-year as both advertising-type and transaction-type revenue growth slowed due to the worsening external economic conditions. Kakao Pay's revenue also remained at a 15% increase level due to a decline in financial product sales.

On the other hand, fixed costs have increased during the same period. Labor costs rose 43% to 420 billion KRW due to an increase in personnel and salary hikes. Marketing expenses also surged 70.2% to 114.6 billion KRW due to aggressive spending for global business.

Oh Dong-hwan, a researcher at Samsung Securities, analyzed, "Due to the domestic economic slowdown and the base effect of COVID-19, the growth of core businesses such as advertising and commerce is slowing, leading to a downward revision of the growth rate forecast for Talk Biz revenue. Since aggressive marketing for overseas content expansion and increased labor costs are inevitable, expectations for profit growth should also be adjusted."

The benchmark interest rate hike is also having an impact. When interest rates rise, the discount rate on future earnings of growth stocks increases, which is unfavorable for stock prices. The U.S. Federal Reserve (Fed) raised interest rates in March and implemented a 'big step' (a 50 basis point increase in the benchmark interest rate at once) on the 5th (local time). Two to three additional hikes are expected within the year, and there is an 87% chance of a 'giant step' (75 basis point increase) in June, making it difficult for growth stocks to experience a sustained upward trend.

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