"Splitting the IPO but not the servers?"... Cold public sentiment toward Kakao 'Lionheart IPO postponed, not withdrawn'

[Asia Economy Reporter Lee Seon-ae] Individual investors' anger toward Kakao, the 'people's stock,' is sky-high. As Kakao Group's stock price plummeted by more than half and experienced a 'Black Monday' on the 17th due to a data center fire on a non-trading day, they are fiercely criticizing Kakao for focusing on 'split listings' while neglecting 'server splitting (distribution).' They hold Kakao responsible for the prolonged service disruption. Moreover, although Kakao Games' subsidiary Lionheart Studio announced the withdrawal of its IPO amid ongoing 'corporate value damage controversies,' this is seen not as a 'withdrawal' but a 'postponement,' meaning the controversy over Kakao Group's 'split listings' is likely to persist.

On the 18th, the securities market viewed the downside for Kakao Group stocks as still open. Despite the group's market capitalization evaporating by more than 2 trillion won in a single day and an average drop of 70-80% from the peak, there is still room to fall further. The combined market capitalization of the four Kakao Group stocks stands at 37.1099 trillion won, down 2.0561 trillion won from 39.166 trillion won on the previous trading day, the 14th. Kakao closed at 48,350 won, down 5.93%. Kakao Bank (-6.29%), Kakao Pay (-4.16%), and Kakao Games (-2.22%) also recorded sharp declines. During the morning session, Kakao, Kakao Bank, and Kakao Pay all hit 52-week lows immediately after the market opened, falling 8-9%, except for Kakao Games.

On the morning of the 17th, when the stock prices of Kakao and its affiliates plummeted amid controversy over inadequate disaster response to the fire at the Pangyo Data Center, the screen installed at Yonhap Infomax in Jongno-gu, Seoul, displayed the stock price graphs of Kakao, KakaoBank, KakaoPay, and KakaoGames. On that day, the opening prices of four Kakao and Kakao affiliate stocks dropped sharply by 7 to 8 percent compared to the previous trading day.

70-80% Plunge Due to Split Listings

Kakao Group stocks have been steadily declining since the beginning of the year. As of the trading day before the fire incident, the 14th, Kakao Pay's closing price was 36,100 won, a 79.55% drop from 176,500 won at the start of the year. Kakao Bank fell 70.39% from 59,100 won to 17,500 won, and Kakao Games dropped 58.87% from 93,000 won to 38,250 won. The flagship Kakao declined 55.11%, from 114,500 won to 51,400 won, a decrease of 63,100 won. Although the decline is smaller compared to the group stocks, it is more than twice the KOSPI's drop of 25.97% during the same period.

Continuous split listings of subsidiaries and doubts about the platform business model have led to a sharp cooling of growth stock investment sentiment, resulting in a series of target price downgrades by securities firms and consecutive stock price plunges. The problem is that individual investors began buying up shares, convinced that the price had hit the 'bottom.' According to the Korea Exchange, Kakao was the third most purchased stock by individual investors over the past month. As of the 14th, before the SK Holdings C&C data center fire on the 15th caused service disruptions, individuals had purchased a total of 156.1 billion won worth of Kakao shares. In contrast, foreigners and institutions sold 56.4 billion won and 98.7 billion won, respectively. This is interpreted as individuals believing the stock had bottomed out.

In this situation, the data center fire has shaken the stock price, deepening individual investors' worries. Complaints have arisen that while Kakao focused on split listings, it did not distribute its data. In fact, Naver did not experience as severe a blackout despite the same incident. Naver also has a significant number of servers in the affected data center. Industry insiders assess that Kakao did not properly implement system redundancy. Furthermore, although Lionheart announced the withdrawal of its IPO, this is considered a 'postponement' rather than a 'withdrawal,' meaning the 'corporate value duplication controversy' will continue, keeping Kakao Group stocks at the center of controversy. This is expected to dampen investor sentiment.

Ahn Jae-min, a researcher at NH Investment & Securities, pointed out, "The stock price declines of Kakao and its subsidiaries, which began last year, continue, and recent incidents such as some executives of listed subsidiaries selling shares have worsened public sentiment around Kakao. Now, this incident has occurred, which may raise further concerns about Kakao and its subsidiaries."

Lionheart to Reattempt IPO

Lionheart is likely to resume its IPO process by March next year. According to the IB industry perspective, due to the put option agreement made with 17 shareholders, including founder CEO Kim Jae-young, when Kakao Games' European subsidiary acquired Lionheart, a complete withdrawal is unlikely. If Kakao Games does not proceed with the IPO, Kim and others can demand that Kakao Games buy some or all of their Lionheart shares, which is expected to be a significant financial burden.

Assuming the withdrawal is postponed until next year, the maximum amount Kakao Games would have to pay Kim is estimated to reach 1 trillion won. Therefore, Kim's side is likely to push for an IPO by the March deadline to avoid selling shares at a low price. Lionheart has officially stated that the IPO withdrawal is actually a postponement. Once the new IPO schedule is confirmed, detailed information will be provided through the submission of a securities registration statement. Since the Korea Exchange requires a company to list within six months after passing the preliminary review, Lionheart has until March next year.

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