NAVER, Kakao Leading Growth in Commerce, Fintech, Content
The author is an analyst of NH Investment & Securities. They can be reached at jaemin.ahn@nhqv.com. -- Ed.
It only takes a moment of thought regarding the quantities of user time being spent on NAVER and Kakao to conclude that Internet players’ ongoing share price ‘flex’ is here to stay.
Internet-oriented living to drive valuation re-rating
We maintain our Positive view of the Internet industry. With the early days of Internet life (eg, the beginnings of communication via SNS) now long behind us, the second phase of living online, in which all of our daily activities are driven by the Internet—including shopping, consuming content, purchasing financial products, and handling work-related affairs—has now become mainstream.
Spurred by Covid-19, the Fourth Industrial Revolution has already kicked off. Evolving from the online-to-offline (O2O) model, an online-oriented world is presently unfolding in which NAVER and Kakao are leading industry growth in such arenas as commerce, fintech, advertising, and content.
Given that Internet companies are rapidly strengthening their influence upon many aspects of our lives, we view industry re-rating as just a matter of time. Just as global Internet firms’ share prices have been pushed up over the past decade by steady earnings growth, NAVER and Kakao should enjoy share price expansion going forward, driven by mid/long-term earnings improvement. Taking the above into account, we raise our TPs on NAVER and Kakao to W450,000 and W520,000, respectively.
Government-led growth to reinforce private-sector expansion
With or without Covid-19, the advent of an Internet-centric world was inevitable. Nevertheless, careful attention should be paid to the fact that related changes have been accelerated by the pandemic—a fact which has been reflected in the real world since 1H20
Over the past 20 years, Internet industry growth has been led by the private sector. Over the mid/long term, it is worth keeping a close eye on the sector’s growth trajectory, given that government-led expansion (eg, via the Digital New Deal) is likely to be in play as well over the coming decade.
Regarding NAVER, we highlight the strengthening of its commerce competitiveness, global growth of NAVER Webtoon, and management integration of LINE and Z Holdings. Turning to Kakao, we recommend keeping an eye on the growth of its Talk Bizboard service, commerce sales, and subsidiaries, including Kakao Page, Kakao Bank, Kakao Mobility, and Kakao M.