Limited OP Growth
The author is an analyst of KB Securities. She can be reached at leesunhwa@kbfg.com. -- Ed.
Maintain BUY but cut target price by 40.9% (KRW110,000→KRW65,000)
We cut our TP by 40.9% (KRW110,000→KRW65,000) for Kakao. 2022E/2023E OP were revised down 6.8%/6.1% given:
(1) damage caused by a fire at its data center and subsequent cost increases and
(2) an increase in discount rate due to base rate hikes (WACC: 9.16%→11.37%).
Our TP represents 36.9x 12m fwd implied P/E, 2.4x P/B. Despite the TP cut, we maintain BUY, as:
(1) Talk Biz revenue should continue rapid growth on the back of increased ad inventory and
(2) the stock is trading at a low of 27.1x 12m fwd P/E (vs. 23.8x upon Daum-Kakao merger in 2014).
3Q22 preview: OP of KRW170.0bn (+1.1% YoY) to be in line
We forecast 3Q22 consolidated revenue at KRW1.91tn (+9.6% YoY, +4.7% QoQ) and OP at KRW170.0bn (+1.1% YoY, -0.6% QoQ; 8.9% OPM), which should be in line. The market consensus (KRW183.2bn) is undergoing downward revisions.
Platform/Others revenue should grow 25.8% YoY
We see Talk Biz revenue growing 16.2% YoY on steady growth at Talk Channel and increased ad inventory at BizBoard (ad exposure via KakaoTalk profile tabs since September). Portal Biz revenue should retreat (-12.5% YoY) on falling Daum website traffic. Platform/Others revenue should advance 58.9% YoY as mobility business is bolstered by recovering transportation demand.
Content revenue to fall 3.4% YoY
Music revenue should rise 6.2% YoY as growing K-pop fandom bolsters earnings at the production/distribution arm amid steady revenue generation at Melon. Story revenue should increase 17.0% YoY thanks to the growing global webtoon market. Game revenue is expected to contract 25.8% YoY because of falling Odin revenue and user complaints regarding Uma Musume, which recently dropped in the top grossing games list. Media revenue should jump 45.0% YoY on the release of the film Hunt and Netflix series Narco-Saints.
OP growth (+1.1% YoY) to be slower than revenue growth (+9.6% YoY)
We see limited OP growth. The ad/commerce units (high OPM) should see top-line growth suffer amid a slowing economy, while the mobility unit (high sales-linked costs) should flourish.