[Click eStock] "Kakao, Earnings Slump and Legal Risks Weigh... Target Price Down"

by Hwang Yoonju

Published 12 Jul.2024 09:19(KST)

[Click eStock] "Kakao, Earnings Slump and Legal Risks Weigh... Target Price Down"

On the 12th, Samsung Securities maintained a 'Buy' rating on Kakao but lowered the target price to 51,000 KRW due to slowing earnings and judicial risks.

Odonghwan, a researcher at Samsung Securities, stated, "Operating profit in the second quarter is expected to increase by only 10.5%, falling short of market consensus by 14%."

Researcher Oh predicted, "Games revenue will decrease by 12% compared to last year, and with the removal of the SM acquisition effect, the growth rate of the music segment will slow to 3%, resulting in content revenue growing by only 1% year-over-year. TokBiz revenue is also expected to slow to a 7% growth rate compared to the previous year due to a slowdown in Biz Board advertising growth."

It is pointed out that presenting a new growth strategy is essential to strengthen platform competitiveness. More than half a year has passed since CEO Jeongsinha was appointed, but a new growth strategy has yet to be presented.

Researcher Oh noted, "Although the AI development organization integration has progressed, the schedule for new model releases or the direction of AI services has not been disclosed, increasing investor anxiety. Additionally, in the core advertising business, the platform has failed to respond to market changes centered on short-form videos, leading to a decline in per-user usage time and a decrease in media attractiveness."

Above all, resolving external risks is also considered urgent. Kakao's management resources have been dispersed due to judicial risks such as the prosecution's investigation related to the SM acquisition and the Financial Supervisory Service's investigation into mobility accounting manipulation.

Researcher Oh emphasized, "Due to public criticism regarding large platforms entering local markets, it is difficult to introduce new business revenue models. Therefore, resolving judicial and regulatory risks must precede securing growth drivers for a new leap forward."