Headwinds from Regulators and Politicians
The Korea Fair Trade Commission, the Financial Services Commission and politicians are increasingly regulating big tech companies and this has led to sharp stock prices declines on the part of Naver and Kakao. It is Kakao that has been hit harder.
From Sept. 7 to 16, the market cap of Naver dropped 10 percent from over 73 trillion won to slightly more than 66 trillion won and that of Kakao plunged 21 percent to 54 trillion won or so. At the same time, short sellers increasingly targeted Kakao. The short selling volume on Kakao amounted to 175.9 billion won on Sept. 8, when that on Naver was 27 billion won. Short selling on Kakao was banned on Sept. 9.
Shinhan Investment, Hyundai Motor Securities and Korea Investment & Securities said in their latest reports that the stock price of Naver dropped excessively. On the other hand, no securities companies have covered Kakao since Sept. 7.
“What the authorities and politicians are calling into question is that the businesses of Naver and Kakao include what should be left for small firms and self-employed persons,” one of the companies explained, adding, “In addition, financial regulations are affecting Kakao rather than Naver in that 95 percent of Naver Financial’s operating profit is derived from easy payment whereas the ratio of investment, lending and insurance sales to Kakao Pay’s sales was as high as 23 percent last year.”
According to some experts, Naver and Kakao are likely to have to struggle for a while as the government is increasingly regulating platform-based service providers. According to others, the stock price declines are because of problems in terms of their fundamentals rather than the one-off factor of regulation. “The stock price of Kakao already peaked in late June this year and that of Naver has changed little since late July,” DB Financial Investment pointed out, adding, “In other words, the recent declines resulted from downward pressure that continued for a while.”