[Platform Investment Sharp Decline] ① Toss Launches IPO... Investors Fear 'Kakao Learning Effect'

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Viva Republica, the operator of Toss, has recently begun selecting underwriters, officially initiating procedures for an initial public offering (IPO). Toss, the first domestic fintech (finance + technology) company to join the unicorn club (unlisted companies valued over 1 trillion won), now aims to become a decacorn (companies valued over 10 trillion won).

Founded in August 2013, Viva Republica started with the simple remittance service Toss and has acquired licenses for banking, securities, insurance, etc., evolving into a super app that offers all financial services within a single application.

The monthly active users (MAU) exceed 15 million. As of the third quarter of last year, cumulative revenue surpassed 1 trillion won, but the company has yet to post a net profit. Among its affiliates, Toss Bank and Toss Securities have managed to turn quarterly profits.

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The biggest obstacle to Toss's IPO is the negative 'learning effect' investors experienced by observing the pre- and post-IPO processes of Kakao Pay and Kakao Bank. The disappointing situations of Kakao's financial affiliates, considered domestic peer groups, are expected to hinder demand forecasting and pricing decisions during Toss's IPO process.

Kakao's financial affiliates faced controversies over the appropriateness of their IPO pricing, with their stock prices significantly declining compared to their initial listing prices. Kakao Pay's stock, which once approached 250,000 won, has now dropped to 40,000?50,000 won, about half of its IPO price (90,000 won).

Kakao Pay faced overvaluation controversies from the start of its IPO. It set its IPO price at 90,000 won by comparing itself to major overseas financial platforms such as PayPal (USA), Square (USA), and PagSeguro (Brazil), but its stock price has continuously declined since listing.

Kakao Bank's situation is also severe. Once threatening the 100,000 won mark, its stock now trades between 20,000 and 30,000 won, below its IPO price of 39,000 won. Its market capitalization, which once exceeded 30 trillion won, has fallen to between 12 trillion and 14 trillion won.

Despite achieving record profits by expanding mortgage loans amid high interest rates, negative factors have outweighed positives, and the stock price has not properly reflected this. Growth remains limited to poaching customers from traditional banks, and concerns over the parent company's legal risks and regulatory issues have hindered new business expansion, which is reflected in the stock price.

Although launched as a platform rather than a bank, the minimal proportion of platform revenue has disappointed investors. A senior official in charge of IPOs at securities firm A said, "Toss is a financial company disguised as a platform, so when compared to Kakao's financial affiliates, the answer is clear. Since their revenue structures are similar, there is no expectation that Toss's corporate value will surpass Kakao's financial affiliates."

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With expectations for platform operators' growth dampened, there are concerns that Toss's IPO could become a channel for retail investors to absorb exit (capital recovery) shares from early institutional investors before listing.

Toss has continuously raised capital through paid-in capital increases. Since its establishment in 2013, cumulative investments have reached trillions of won. Investment history shows that starting with a 1 billion won initial investment from venture capital firm Altos Ventures in 2014, over 20 institutions including IBK Industrial Bank, Woori Venture Partners, Goodwater Capital, Singapore Investment Corporation, KDB Industrial Bank, Gwangju Bank, Mirae Asset Securities, and Korea Investment & Securities have poured in more than 2 trillion won.

Toss's corporate value rapidly grew from about 3 trillion won in 2021 to 8 trillion won, attracting attention. There was even hope it would surpass 10 trillion won quickly. However, inflation, economic recession, and a cooling investment sentiment, along with market reevaluation of platform companies, have made the IPO's success uncertain.

Previously, investors focused on new technology adoption, traffic, and user growth, but now they emphasize actual profit generation potential, lowering evaluations of platform operators. Additionally, controversies over inflated IPOs, such as the recent Fadoo scandal, and ongoing trust issues in the IPO market have led to more conservative assessments of corporate growth value.

While profitability expansion is necessary, Toss remains in the red. According to the Financial Supervisory Service's electronic disclosure system, Toss's net losses have continued since inception: 91 billion won in 2020, 216 billion won in 2021, 371 billion won in 2022, and 182.5 billion won (cumulative for the first three quarters) in 2023. For investment to be justified, there must be expectations of additional growth post-investment, which is not the case for domestic platform operators.

Jinwan Cho, President of the Korea Financial Industry Institute, said, "It is true that Korean fintech companies face growth limitations due to regulations and the size of the domestic market. Ultimately, for Toss, Kakao Bank, Naver Financial, and K Bank to significantly expand market size, they need to pursue global business. That requires large-scale investment and investment attraction strategies, but it is questionable whether our platforms have such capabilities."

Professor Soo-hyun Boo of Gyeongsang National University stated, "The platform industry is a highly challenging regulated sector where expanding overseas business or developing new services should be actively supported, but monopolistic or anti-competitive behaviors in the domestic market must be strictly controlled. Regulation requires great caution when imposed and rational easing when lifted, which is never easy."

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