Kakao Group Stock Realizes 'Black Monday'

[Image source=Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] The 'Black Monday' for Kakao Group stocks has become a reality. Following a data center fire over the past weekend that caused most of Kakao's services to be down for nearly a day, the group is facing a series of setbacks. After global interest rate hikes and controversies over physical division earlier this year, this service outage incident has led to jokes that Kakao Group is suffering from the "three disasters" (Samjae, 三災).

According to the Korea Exchange on the 17th, as of 9:06 a.m., Kakao's stock price fell 9.05% from the previous trading day to 46,750 KRW. At the same time, KakaoBank was trading down 8.57% at 16,000 KRW, and KakaoPay was down 9.14% at 32,800 KRW. Kakao Games showed a decline of 8.37% to 35,050 KRW.

With Kakao Group stocks collectively plunging by 8-9%, the worries of retail investors are deepening. As of the first half of this year, the number of small shareholders in Kakao is estimated at 2.04 million. Kakao has been one of the most purchased stocks by individual investors this year, following Samsung Electronics and Naver. The net purchase amount of Kakao shares by individual investors this year reached approximately 1.9997 trillion KRW, while during this period, Kakao's stock price has dropped by about 55%. Compared to last year's peak, it has fallen by nearly 70%. Particularly, KakaoBank among Kakao Group stocks has seen a decline of up to 80%. At one point, Kakao ranked 4th in market capitalization on the KOSPI but currently stands at 12th.

The data center fire that triggered the sharp stock price drop is an accident, but it also highlights Kakao's operational shortcomings. The fire occurred at the SK C&C Pangyo Data Center, which Naver also uses, but Naver's services were quickly restored. Naver suffered less damage due to redundancy of major services, distributed component deployment, and backups. Additionally, Naver owns its own data center, minimizing the impact of the fire. In contrast, Kakao had about 32,000 servers at the SK C&C Pangyo Data Center, which served as its main center, exacerbating the scale of the damage.

Amid an unfavorable environment for growth stocks due to global interest rate hikes continuing since early this year, Kakao Group stocks are struggling to find a rebound momentum following the controversy over physical division and now the fire incident. In particular, Kakao has faced criticism for splitting fintech (KakaoPay) and internet banking (KakaoBank) within the financial sector, as well as attempts to spin off the game business division (withdrawal of Lionheart listing) within the gaming sector.

The estimated loss from the fire for Kakao is around 20 billion KRW. Securities firms predict that the stock price decline and the impact on fourth-quarter earnings will be inevitable. Samsung Securities analyst Oh Dong-hwan said, "The impact of this service outage on sales will appear as lost revenue and user compensation," adding, "Fourth-quarter sales are expected to decrease by up to 1-2%."

Daol Investment & Securities analyst Kim Jin-woo also noted, "If compensation extends to sellers connected to KakaoTalk and KakaoPay, the scope of damage compensation could become difficult to estimate due to its magnitude," pointing out, "Even assuming only paid users, the impact on operating profit is about 12 billion KRW, which is a 7% downward factor from the existing fourth-quarter estimates."

KB Securities analyst Lee Sun-hwa analyzed, "Calculating the damage Kakao will suffer based on expected fourth-quarter sales, the amount is about 22 billion KRW," adding, "Discussions on compensation for paid services are also underway, making cost increases inevitable."

Some securities firms have significantly lowered Kakao's target stock price, citing the damage to brand value caused by this service disruption. Eugene Investment & Securities lowered Kakao's target price from 106,000 KRW to 65,000 KRW. Korea Investment & Securities also cut it from 100,000 KRW to 80,000 KRW.

Jung Eui-hoon, an analyst at Eugene Investment & Securities, said, "This incident caused inconvenience to the entire nation and diminished the brand premium of Kakao's various platform services."

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