COVID-19 Causes a Shift in Consumption Pattern
The author is an analyst of Shinhan Investment Corp. She can be reached at mj1224@shinhan.com. -- Ed.
Positive on COVID-19-sparked changes in consumption habits
For the internet sector, we focus more on the positive impact of COVID-19 in terms of changing consumer habits towards “untact” (a portmanteau of undo and contact) services than its negative impact on earnings. With people avoiding outdoor activities, we are seeing a surge in consumption of content such as webtoons and web novels. Consumers in their 50s and 60s have started to increase their e-commerce participation. Non-face-to-face financial services are also growing significantly. As such, we believe that COVID-19 benefits internet platform companies by causing a shift in consumption pattern in favor of their new businesses.
1Q20 earnings forecasts revised down for major internet companies
Major internet platform companies like NAVER, Kakao, and AfreecaTV are expected to post sluggish earnings for 1Q20, with many ad campaigns delayed or canceled amid the COVID-19 pandemic. NAVER should report operating profit of KRW200.2bn (-9.4% vs. market consensus), Kakao KRW73.3bn (-11.7%), and AfreecaTV KRW9bn (-8.9%).
Recommend buying during correction driven by market declines
We revise down our target price for NAVER by 4.4% and Kakao by 4.8%, reflecting the drop in valuation of global peers. We recommend accumulating NAVER and Kakao shares during correction as their key investment drivers — e-commerce, content, and financial services — stand to benefit from reduction in outdoor activities and rise in untact consumption.