2022 Forecast: OP of KRW956.9bn (+60.3% YoY)
The author is an analyst of KB Securities. He can be reached at drlee@kbfg.com. -- Ed.
Maintain BUY but cut target price to KRW130,000
We maintain BUY on Kakao but cut our TP to KRW130,000 (-18.8%). Derived using the DCF model, our TP represents 73.0x implied P/E. Despite our expectation that 2022 revenue will be above the market consensus, we revise down 2022E/2023E OP by 8.1%/10.3% because of a downward revision to Game revenue and slow margin improvement caused by increased investments in new businesses.
4Q21 review: In line when excluding one-off expense
Kakao posted 4Q21 revenue of KRW1.79tn (+44.5% YoY, +2.5% QoQ) and OP of KRW108.5bn (-27.5% YoY, -35.5% QoQ); revenue came in 3.3% above the consensus and OP fell short by 34.0%. Platform saw Talk Biz revenue growth slow (+30% YoY) while Other revenue (+107.2% YoY) enjoyed a boost from the mobility business, which saw gains on high seasonality. For Content, KakaoStory suffered an unprecedented drop in revenue (-3.4% QoQ) because of (1) a high base effect attributable to a surge in offline activity in Japan before Omicron and (2) stabilizing Kakao Webtoon revenue. When excluding one-off bonus payments (related to sale of Dunamu stake), OP came in line at KRW170.2bn.
2022 forecast: Talk Biz to continue fueling growth
We forecast 2022 revenue of KRW8.2tn (+33.4% YoY) and OP of KRW956.9bn (+60.3% YoY). The company should enjoy rapid top-line growth as well as sustained profit margin improvements at key business segments. At home, the presence of Kakao’s mainstay businesses (e.g., platform-based ads, fintech, mobility) continues to grow. Overseas, expansion has been aggressive, led by Content. Talk Biz achieved rapid revenue growth of 43.1% YoY in 2021; it is expected to maintain momentum this year (+38.3%). For Advertisement, a positive feedback cycle (i.e., Bizboard-Talk channel-AlimTalk) is expected to boost prices, contributing to earnings growth. For Commerce, GMV should exceed KRW10tn within the year. In terms of Content, we see top-line growth continuing with additional proprietary IP, building on the company’s establishment of a foothold for global expansion in 2021. However, investments in new businesses (e.g., new content, blockchain) will likely impede profit margin improvement.