[Initial Insight] Why Did Gukminju Fall into Decline?

Kakao with Over 2 Million Individual Investors
Owner Arrested Amid Market Manipulation and Exit Scandal
Shareholders Cry as They Enrich Themselves

‘Market manipulation, split listings, sprawling expansion, embezzlement, accounting fraud suspicions’

These are issues that can cause fatal damage to a company if even one occurs. However, there is a company where all these issues have occurred. That company is Kakao. On top of that, it faced a crisis with the worst issue of the owner’s arrest.

Kim Beom-su, the founder of Kakao and chairman of the management innovation committee, who is accused of market manipulation related to SM Entertainment (SM), was arrested on the 23rd. Chairman Kim is suspected of having been informed or instructed to purchase a large amount of SM shares in a short period to obstruct the public tender offer by competitor HYBE during the competition to acquire management rights of SM last February.

The problem is that a large number of small shareholders are tied up in Kakao. According to the Financial Supervisory Service’s electronic disclosure system, as of the end of the first quarter this year, the number of Kakao’s small shareholders was 1,790,421, accounting for 61.55% of the total shares owned.

Kakao surpassed 2 million small shareholders in 2021. The number increased by more than 1.45 million from 560,000 at the end of 2020 through a stock split and other measures in 2021. Following Samsung Electronics, it became the second company to exceed 2 million individual investors, establishing itself as a true 'national stock.' The surge in small shareholders at that time was partly due to the stock split making small investments easier, but Kakao’s soaring stock price also had an impact. In June 2021, Kakao’s stock price surpassed 170,000 KRW intraday and rose to third place in market capitalization, showing unstoppable growth. Additionally, in the same year, Kakao Bank was listed in September, followed by Kakao Pay in November, pushing Kakao Group’s market capitalization over 100 trillion KRW and ranking fifth in market cap after Samsung, SK, LG, and Hyundai Motor.

However, Kakao’s success did not last long. The company’s image plummeted amid various controversies. Following the listing of Kakao Games in 2020, Kakao Bank and Kakao Pay were consecutively listed in 2021, sparking criticism of split listings. It was argued that splitting and listing high-growth businesses damaged the value of existing Kakao shareholders. Kakao Bank and Kakao Pay also faced overvaluation controversies. Amid these circumstances, Kakao executives angered investors by selling stocks acquired through stock options and pocketing large sums. In December 2021, eight executives of Kakao Pay sold about 440,000 shares obtained through stock options, disposing of stocks worth 90 billion KRW, triggering embezzlement controversies. The executives collectively realized profits just about a month after the listing, causing the stock price to remain weak. Thanks to the executives pocketing large sums, shareholders had to bear losses. After the executives’ share sale disclosure, Kakao Pay’s stock price fell nearly 24% over the following month.

That is not all. Kakao Mobility is facing sanctions from the Financial Supervisory Service amid suspicions of accounting fraud.

Amid various controversies, the stock price could not help but slump. Kakao’s stock price, which soared to 170,000 KRW in June 2021, has now fallen to 40,000 KRW. This year alone, Kakao’s stock price has dropped 25.32%, Kakao Games 29.05%, Kakao Bank 24.91%, and Kakao Pay 47.77%. The market capitalization of Kakao Group, which once exceeded 100 trillion KRW, has shrunk to 36 trillion KRW, despite the number of listed affiliates doubling from five to ten.

Amid various controversies, Kakao has fallen from a national favorite stock to a 'national disliked stock.' Kakao, which ignored the tears of its shareholders and was only eager to fill its own pockets, has brought the crisis upon itself.

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