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Platform valuations

Kakao Entertainment’s enterprise value seen above $8.9 billion

By Apr 09, 2021 (Gmt+09:00)

Itaewon Class, a webtoon-turned-drama global success story by Kakao Page.
Itaewon Class, a webtoon-turned-drama global success story by Kakao Page.

Kakao Entertainment Corp. is working to make a trading debut on the domestic bourse in the latter part of this year or in 2022 at the latest. And that keeps analysts busy assessing the enterprise value of the content platform unit of South Korea’s top mobile app operator Kakao Corp.

Valuations vary but a growing market view is that Kakao Entertainment’s corporate value will easily exceed 10 trillion won ($8.9 billion), given the synergy it creates from the merger of the Kakao group’s content-related affiliates amid the explosive growth of home entertainment in the pandemic.

Kakao Entertainment was launched in January through the merger of Kakao M, the group’s entertainment platform, with Kakao Page, a content platform for webtoons and web novels.

The merger ratio was set at 1:1.31 for Kakao Page and Kakao M and the enterprise value was assessed at a ratio of 1:0.6 for Kakao Page and Kakao M, respectively.

In 2020, Kakao Page posted an operating profit of 40.7 billion won on revenue of 359.1 billion won, while Kakao M reported 16 billion won in operating profit with revenue of 464.7 billion won.

Simply combined, the merged entity’s revenue stood at 823.8 billion won and operating profit at 56.7 billion won. And analysts say the revenue of the new company, Kakao Entertainment, will reach more than 1 trillion won this year, given the steady pace of growth in the domestic entertainment platform market.

GROUNDWORK FOR GLOBAL EXPANSION

Kakao Page boasts a robust portfolio of intellectual property rights for almost 8,500 webtoons and web novels, alongside an extensive distribution network. Kakao M is an entertainment platform that manages music labels, singers and actors. It also specializes in content production for mobile, TV and live platforms.

What's Wrong with Secretary Kim?, a webtoon-turned-drama by Kakao Page.
What's Wrong with Secretary Kim?, a webtoon-turned-drama by Kakao Page.
Industry watchers say the two companies' synergy is expected to lay the groundwork for Kakao Entertainment's global expansion. Kakao Entertainment plans to roll out various businesses, including tie-ups between Kakao Page's IP portfolio with Kakao M's artists and production.

Kakao Page has already proven its capability of successfully turning webtoons and web novels into TV series dramas such as The Uncanny Counter, Itaewon Class and What's Wrong with Secretary Kim?

In its efforts to go global, sources said earlier this month KaKao Entertainment is in talks to buy the management rights of US-based mobile fiction startup Radish Fiction for around 400 billion won ($354 million).

Kakao Entertainment already owns a 12% stake in Radish, which it purchased for 32.2 billion won in 2020, amid intense competition for storytelling content among internet platforms, streaming service providers and even telecom giants.

MERGER SYNERGY TO BOOST VALUATIONS

NH Investment & Securities Co. and KB Securities Co., the lead managers of Kakao Entertainment's IPO, have reportedly valued Kakao Page at around 4 trillion-5 trillion won and Kakao M at 2 trillion won. But some analysts offer different views.

Seong Jong-hwa, an analyst at eBest Investment Securities, said he expects Kakao Entertainment to post more than 200 billion won in operating profit with sales revenue in the mid-1 trillion won range this year.

Kakao Entertainment’s enterprise value seen above .9 billion

“Based on the earnings prospect, we assess the company’s corporate value at around 14.28 trillion won, including the synergy from the combination of the two Kakao affiliates,” he said.

The equities market expects shares of Kakao Entertainment will go public following the listing of two other Kakao group affiliates, Kakao Pay and KakaoBank, which are also in the IPO pipeline this year.

Write to A-Young Yoon at youngmoney@hankyung.com

In-Soo Nam edited this article.

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