Investments in New-growth Businesses Bearing Fruit
The author is an analyst of KB Securities. He can be reached at drlee@kbfg.com. -- Ed.
Maintain BUY; Revise up TP by 4.7% to KRW135,000
We maintain BUY on Kakao as we lift our TP by 4.7% to KRW135,000. While our revenue and OP forecasts have been left largely unchanged, we have revised up 2021E and 2022E NP (attributable to controlling interests) by 19.2% and 2.3%, respectively, to reflect the expected increase in equity-method gains from Dunamu. We expect the volatility in equity-method gains to fade from 2022.
1Q21 OP in line with consensus; Equity-method gains related to Dunamu increased
Kakao reported 1Q21 revenue of KRW1.26tn (+44.9% YoY, +1.8% QoQ) and OP of KRW157.5bn (+78.6% YoY, +5.3% QoQ). OP was in line with our estimate as well as market consensus. Key businesses—including Talk Biz (+51.4% YoY), new businesses (+88.9% YoY), and paid content (+80.0% YoY)—catalyzed revenue growth. OPM (12.5%, +0.4pp QoQ) continued trending up on narrowing losses at new businesses (i.e., KakaoPay, mobility). Meanwhile, NP (attributable to controlling interests) skyrocketed 189.9% YoY to KRW224.5bn thanks to higher equity-method gains from Dunamu upon the growth in cryptocurrency trading value.
Strong growth continues, driven by Talk Biz
For 2021, Talk Biz revenue is expected to increase 50.4% YoY as both ad and commerce should continue to serve as major cash cows. In the ad segment, BizBoard customers are increasingly using add-on services (e.g., Kakao Talk Channel, Notification Talk, Talk Store), fueling a virtuous cycle in which synergies among the various services expand. In the commerce segment, along with category expansion, transaction value is growing across all categories (e.g., Kakao Talk Gift, Talk Store, Shopping Live).
Investments in new-growth businesses bearing fruit
Kakao’s aggressive investments in a broad range of businesses—including paid content, fintech, entertainment, and mobility—are beginning to bear fruit. A number of subsidiaries are preparing for IPOs in 2021-2022 and Kakao’s core business (i.e., KakaoTalk) should also see growth in earnings accelerate—giving way to both earnings growth and momentum for the company.