Top-line Growth Expectations: Low in 1H23, High in 2H23
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
Although concerns linger toward Kakao’s ad and commerce domains amid an ongoing economic slowdown, we expect an earnings recovery from 2Q23 in line with a strengthening in its business model for KakaoTalk. We foresee consolidated 2023 OP of W790.8bn (+36.2% y-y), with OP returning to a healthy growth track.
Top-line growth expectations: Low in 1H23, high in 2H23
We maintain a Buy rating and a TP of W78,000 on Kakao. Various unfavorable factors were in play in 2022 (including poor sales amid economic woes and a suspension of operations due to the IDC fire), but Kakao is anticipated to seek a top-line rebound in 2023.
With the firm aiming to strengthen its business model for KakaoTalk, a reorganization of KakaoTalk services (including profile area decorations, invigoration of open-chat and Friends Tab ads) is scheduled in 1H23. Accordingly, we look forward to an accompanying expansion in new sales.
Looking at 2023, while economic slowdown concerns linger and earnings growth is to be restrained this quarter by off-seasonality (1Q), earnings should pick up from 2H23 on both y-y low-base effects (with the Covid-19 crisis now behind) and likely earnings growth for new businesses (including the firm’s pay services, mobility, and content ventures)
4Q22 preview: OP to arrive sluggish
On a consolidated basis, we estimate overall 4Q22 sales of W1.84tn (+3.2% y-y, -0.9% q-q) and OP of W100.5bn (-5.7% y-y, -33.2% q-q), with OP missing consensus of W127.1bn.
Given the ongoing economy slowdown and a week of ad suspension (due to the IDC fire), we believe that Talk Biz sales upped only +3.1% y-y to W489.7bn. Kakao’s 4Q22 earnings release will likely show q-q sales drops for: 1) Portal Biz (W99.0bn, -9.8% q-q) on the exclusion of the subsidiary in consolidation standards; 2) Kakao Games (W249.8bn, -15.7% q-q) due to decreased sales of Odin and Umamusme; and 3) Kakao Music (W226.5bn, -9.5% q-q) in response to high-base effects stemming from strong IVE album sales in 3Q22.
On the other hand, Kakao Mobility, Kakao Pay, Kakao Commerce, and Kakao Media all likely maintained healthy top-line growth in 4Q22, aided by peak seasonality (4Q).