Focus on Mobility and Entertainment
The author is an analyst of Shinhan Investment Corp. He can be reached at mj1224@shinhan.com. -- Ed.
2Q21 OP forecast at KRW173.7bn (+10.2% QoQ)
We now expect Kakao to report operating profit of KRW173.7bn (+10.2% QoQ) on sales of KRW1.34tr (+6.8% QoQ) for 2Q21, slightly missing the KRW179.6bn consensus estimate.
Talk Biz sales likely jumped more than 60% YoY to KRW399.1bn, sustaining the previous quarter’s strong growth momentum. Kakao Bizboard is expected to have recorded daily average sales of around KRW1bn. Kakao Talk ad sales should have remained solid overall on improvement in usability of Bizboard-linked channels and landing pages. Kakao Commerce should have delivered growth in all segments, including Kakao Gift, KakaoMakers, and Talk Deal, thanks to diversification of product categories and increased accessibility with shopping tab updates on Kakao Talk.
New Biz sales is projected to have reached KRW207.4bn (+9.3% QoQ). With rapid growth in the number of Kakao T Blue taxis and increase in Kakao Pay payments and financial transaction value, Kakao T and Kakao Pay should continue to report brisk sales.
Subsidiary IPO momentum already priced in; focus on mobility and entertainment
Kakao’s enterprise value rose more than 20% in June alone, partially reflecting IPO momentum expected for Kakao Bank and Kakao Pay. The IPOs may result in dilution of Kakao’s stake holdings and a discount to its equity value.
Expectations for mobility and entertainment units remain upbeat. Kakao Mobility is expanding from the transportation of people to objects with the launch of quick delivery and door-to-door courier services. Its business model is strengthening based on the ever-growing size of potential markets, such as substitute driver, parking, and quick delivery services. Kakao Entertainment is ramping up forays into the North American and European markets through the acquisition of Tapas Media and Radish Media. The merger with the music streaming platform Melon enabled Kakao to internalize the entire value chain in entertainment content creation from planning to production and distribution. Melon, the company’s new cash cow, should help ease the burden of aggressive marketing and service expansion.
Target price revised up by 29.6% to KRW175,000
We raise our target price for Kakao to KRW175,000. The upside is limited in the near term with momentum from the planned IPOs of Kakao Pay and Kakao Bank already priced in. However, upward adjustment of our target price looks possible given the expansion of mobility and entertainment businesses and IPO expectations (2022) on top of the growth streak in flagship businesses (commerce, ads).