Kakao, Target Price Lowered Due to Lack of Growth Strategy and Legal Risks

Samsung Securities emphasized the need for a new growth strategy and resolution of legal risks as it lowered its target price for Kakao on the 12th.

Dong-Hwan Oh, a researcher at Samsung Securities, revised down Kakao’s estimated operating profit for this year and next by 9.1% and 21.7%, respectively, and reduced the target price from 59,000 won to 51,000 won, citing the company's slowing growth.

Oh noted, "It has been more than half a year since Kakao's new CEO Jong-Sin Jeong was appointed, but no new growth strategy has been presented yet. While the AI development organization has been integrated, the schedule for new model launches and the direction of AI services remain unclear, increasing investor anxiety."

Additionally, Kakao has not adequately responded to the market shift towards short-form videos, reducing its media attractiveness, highlighting the urgent need for a new growth strategy.

Moreover, legal risks, such as allegations of stock price manipulation during the acquisition of SM Entertainment and accounting fraud at Kakao Mobility, are causing management resources to be dispersed.

Oh further pointed out, "Public criticism regarding large platforms entering small business territories makes it difficult to introduce profitable models for new businesses. Resolving legal and regulatory risks is crucial for securing aggressive growth drivers."

Regarding Kakao’s Q2 performance, it is expected that sales growth will be only 5.8% year-on-year due to the slowdown in all business units except for Kakao Pay and Kakao Mobility.

Despite anticipating a 10.5% year-on-year increase in operating profit to 125 billion won for the second quarter, this figure falls short of market expectations by 13.7% due to increased depreciation costs for the new data center and higher external infrastructure expenses.

Samsung Securities maintained its 'Buy' investment rating for Kakao, considering its absolute dominance in the messenger market.

However, it reiterated the necessity for Kakao to present a new growth strategy and resolve legal risks for continued growth.

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Kakao, Target Price Lowered Due to Lack of Growth Strategy and Legal Risks