The Fall of 'Nakao'... Hit by Interest Rates, Pressured by Earnings Outlook

Naver down 18.13% in September
Daily new lows after falling below 200,000 won
Kakao also down 23.84%
Growth stocks see higher discount rates amid aggressive tightening
Recession concerns add pressure... Negative earnings outlook

[Asia Economy Reporter Hwang Yoon-joo] Basement level. Naver and Kakao are plummeting fiercely. This is due to the Federal Reserve's (Fed) aggressive interest rate hike policy and gloomy earnings outlook, which have dampened investor sentiment.

As of 9:43 a.m. on the 30th, Naver was trading at 195,000 KRW, down 0.51% (1,500 KRW) from the previous trading day. Naver even dropped to 192,500 KRW shortly after the market opened. Kakao was at 56,600 KRW, up 1.07% (600 KRW).

Since the beginning of this month until the previous day’s close, Naver’s stock price has fallen by 18.13%. On the 28th, it broke below 200,000 KRW. This is the first time the stock price has fallen below 200,000 KRW since May 2020. During the same period, Kakao dropped by 23.84%.

The reason Naver and Kakao are struggling is due to the Fed’s steep interest rate hikes. Growth stocks are valued by discounting future value to the present, and during periods of rising interest rates, the discount rate increases. Although the valuation of big tech companies is lower than ever before, considering the macro environment, the consensus is that a meaningful stock price rebound for Naver and Kakao is unlikely.

[Image source=Yonhap News]

The concern over an economic recession due to monetary tightening is also a burden amid the gloomy earnings outlook. Recovery in operating profit growth is a condition for a stock price rebound, but it is evaluated that improvement will not be easy until the second half of the year.

Jung Ho-yoon, a researcher at Korea Investment & Securities, said, "Naver’s new growth businesses such as content (webtoons) and fintech are still growing rapidly but have not yet generated significant profits," adding, "Profit growth can improve only when the recovery of advertising and commerce sales, which have high profit-generating power, occurs."

Researcher Jung explained, "The high base in 2021 is negatively affecting this year, and due to the impact of the economic recession, the growth rate of the advertising market has also clearly slowed compared to last year."

Kakao is also expected to see a slowdown in advertising sales growth in the second half due to the economic recession. Oh Dong-hwan, a researcher at Samsung Securities, analyzed, "The growth rate of advertising-type Talk Biz sales is expected to slow from 28% in the second quarter to 23% in the third quarter," adding, "Operating profit growth is also expected to be 6.6%, lower than consensus."

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