Advertising, Commerce, Content to Lead Growth
The author is an analyst of KB Securities. He can be reached at drlee@kbfg.com. -- Ed.
Maintain BUY, lift target price to KRW170,000
We maintain BUY on Kakao and lift our DCF-derived TP by 25.9% to KRW170,000 (74.0x implied P/E). We raise 2021E/2022E OP by 7.5%/7.2% to reflect rapid growth at core businesses and the success of Odin (new game). Furthermore, we increase 2021E/2022E NP (attributable to controlling interests) by 52.4%/28.7%, as we anticipate more equity-method contributions from fintech company Dunamu.
Solid earnings if one-off loss stripped out
Kakao reported 2Q21 revenue of KRW1.35tn (+41.9% YoY) and OP of KRW162.6bn (+66.3% YoY). With a one-off loss from stock options (KRW12.1bn) stripped out, earnings would have been in line. Talk Biz posted balanced growth across advertising (+55.5% YoY) and commerce (+47.6% YoY), while GMV for KakaoPage and Piccoma ballooned 93.1% YoY and 54.9% YoY, respectively. Revenue from other platforms soared 73.5% YoY, driven by robust performance by Kakao Mobility and Kakao Pay.
Advertising, commerce, content to lead company-wide growth
Going forward, major subsidiaries are expected to list soon, and we believe growth will be driven by advertising, commerce and content:
(1) Advertising: Bizboard serves as a point of contact for customers while Talk Channel facilitates return visits. We note a rapid increase in Kakao Sync subscriptions made by clients, which are taking advantage of a growing subscriber influx from the service.
(2) Commerce: We expect a virtuous cycle to emerge, as solid results at Talk Biz should lead to an increase in commerce GMV. Kakao revolves around the user experience, so personalized curation should increase no. of users and GMV.
(3) Story: Following an organizational reshuffle, collaboration across Content platforms (webtoon, webnovel, video, music) should strengthen, which should facilitate the entry of Tapas (webtoon platform) and Radish (webnovel platform) into North American markets from 3Q21. Backed by key IP acquisitions, Kakao plans to use its success in Japan as a springboard into other global markets, sustaining top-line growth.