[Click eStock] "KakaoGames Needs a Reversal Card to Restore Appeal... Target Price ↓"

[Asia Economy Reporter Myunghwan Lee] Meritz Securities announced on the 3rd that it maintains a buy rating on Kakao Games but lowers the target price from the previous 53,000 KRW to 45,000 KRW. This is due to the downward revision of the company's earnings forecast for next year.

Kakao Games' consolidated sales for the third quarter of this year decreased by 34% year-on-year to 306.9 billion KRW, while operating profit increased by 2.3% to 43.7 billion KRW. Meritz Securities diagnosed that Kakao Games posted operating profit significantly below market expectations.

The cause of the poor performance was cited as mobile game sales amounting to 197 billion KRW, which fell far short of the expected 258.1 billion KRW. Meritz Securities pointed out that the operating profit of its subsidiary Lionheart Studio appeared to meet expectations at 36.5 billion KRW. This indicates that the decline in sales of other games such as 'Umamusume', excluding 'Odin', was steeper than anticipated.

Meritz Securities cited the downward revision of 2023 earnings as the reason for lowering Kakao Games' target price. The global mobile game market growth rate in the first half of this year recorded a contraction of -7%, and Meritz Securities analyzed that the third quarter likely recorded an even worse -12%. They also added that during market contraction periods, the operating profit reduction of publishers, who act as distributors, accelerates.

Researcher Hyojin Lee of Meritz Securities stated, "The core business margin of Kakao Games, which is publishing-centered, is likely to decline in the long term, and the continued listing of subsidiaries increases substitutes," and diagnosed, "Although the recent listing of subsidiary Lionheart Studio was withdrawn, considering the structure at the time of share acquisition, listing appears to be a matter of time." She further analyzed, "It is judged to be a time when a new card to prepare for 2023 is needed."

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