NH Investment lowers target price for Kakao over sluggish ad business

[Courtesy of Kakao]

NH Investment & Securities revised its target price for Kakao downwards, citing the persistent challenges faced by the platform’s advertising and commerce business, which has failed to demonstrate a clear rebound due to the sluggish domestic economy. The new target price was down from 72,000 won ($53.3) to 60,000 won, but the “buy” recommendation on Kakao remains unchanged.

In a report released on Friday, NH Investment & Securities analyst Ahn Jae-min expressed concerns about the recovery of the company’s “Talk Biz” sector amid Korea’s ongoing economic downturn. “Given the challenging conditions in the domestic economy, it is not anticipated that the company’s traditional cash cow will experience a rebound even through the third quarter of 2023,” Ahn said.

The analyst added that Kakao’s third-quarter performance would likely fall short of market consensus, with 2.24 trillion won in estimated revenue and 120.5 billion won in operating profit. The new projection for the operating profit is below the market consensus of 145 billion won.

“Nevertheless, there is hope for a gradual recovery in the fourth quarter, as advertising and commerce businesses typically enter their peak season during this period. Additionally, the alignment of KakaoTalk’s first and open chat tabs, along with a reduction in discounts for cost per time products, is expected to contribute to an incremental increase in revenues.”