Tangible Results Appearing Across the Board
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
Benefiting from the massive influence of the KakaoTalk platform, Kakao’s subsidiaries are reporting sound business results.
Tangible results appearing across the board (eg, ads, commerce, content, and mobility)
Reiterating a Buy rating, we raise our TP for Kakao from W120,000 to W140,000 (reflecting stock split). We suggest Kakao as our top pick for the Internet sector, noting the appearance of meaningful results for the firm’s vertically-integrated services, based on KakaoTalk. Each of these services has cemented a solid position in its respective field, creating sound user traffic and reaping healthy profits.
Via KakaoTalk Bizboard, the ad business is driving growth in the domestic performance-based ad market, backed by its high user traffic, database, and technological prowess. As a form of target marketing for individual customer groups, performance-based ads are contributing to the company’s commerce business as well.
Created via a merger between Kakao Page and Kakao M, Kakao Entertainment is foreseen to evolve into an influential player in the content industry, thanks to a mixture of: 1) Kakao Page’s webtoon platform and IP competitiveness; and 2) Kakao M’s content production and management capabilities for famous artists.
Having recently received investment from Google, Kakao Mobility should display earnings growth in earnest going forward, in light of a fast rise in the number of franchised taxies and an increase in Kakao T Blue usage. Once the pandemic eases, its chauffeur service sales should resume recovering, and its business model for a paid taxi service should gradually get off the ground.
Subsidiaries’ IPO momentum to pick up
We also expect that subsidiaries’ IPO momentum will boost Kakao’s share price. Kakao Games went public last year, and Kakao Pay is slated to go public in 3Q21, Kakao Bank in 4Q21, and Kakao Entertainment in 2022. Subsidiaries’ IPOs should bolster Kakao’s EV, and the proceeds from the IPOs should offer opportunities to explore new growth engines.