[Click eStock] "Kakao, Turnaround Expected Next Year... Target Price Up"

Meritz Securities on the 27th raised the target price for Kakao from 55,000 KRW to 65,000 KRW, anticipating a turnaround in next year's performance. The investment rating was maintained at 'Buy.'

Researcher Lee Hyo-jin of Meritz Securities explained, "The upward revision of Kakao's fair stock price reflects the improved earnings outlook," adding, "Next year, Kakao's consolidated operating profit is expected to increase by 54% year-on-year to 716.9 billion KRW, with cost efficiency and normalization of operations having the greatest impact."

Despite sluggishness in listed subsidiaries, profits in the fourth quarter of this year are expected to hold up well. Meritz Securities forecasts Kakao's consolidated Q4 results to be 2.2 trillion KRW in revenue and 141.8 billion KRW in operating profit. These figures represent increases of 24% and 41% respectively compared to the same period last year, with operating profit revised upward by 30 billion KRW from previous estimates. Lee said, "This is due to improved advertising performance in separate entities, a reduction in one-time costs in Q3, and a turnaround effect in Story in Q3," adding, "Marketing expenses are also being tightly managed, and excluding listed subsidiaries, consolidated operating profit is expected to decline by 11% year-on-year to 400 billion KRW, marking a solid year-end."

There is a view that it is necessary to respond to the increased visibility of next year's turnaround. Lee stated, "This year, due to business unit adjustments and artificial intelligence (AI) investment decisions in response to market changes, incremental costs relative to revenue were high, but next year, the effect of resource reallocation and reduced investment burden will allow revenue growth to translate into profit," adding, "Despite the increased visibility of the 2024 turnaround, investors' portfolios do not yet seem to fully reflect preparations for Kakao." He further added, "We maintain our previous view forecasting outperformance (exceeding market returns) due to gap filling through the end of the year."

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