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Enterprise value

Kakao just behind rival Naver in market cap, may overtake soon

Both companies have further growth potential over the long term, analysts say

By Jun 03, 2021 (Gmt+09:00)

Kakao has become a household name, with its operations spanning various sectors, including digital content, mobility, games and fintech.
Kakao has become a household name, with its operations spanning various sectors, including digital content, mobility, games and fintech.

South Korean mobile platform giant Kakao Corp.’s enterprise value is rising backed by its strong business performance, threatening to overtake its bigger crosstown rival Naver Corp. in terms of market capitalization.

The market value difference between the two companies has significantly narrowed to 3.26 trillion won ($2.9 billion) from 13 trillion won earlier this year, prompting a projection that Kakao becoming larger than Naver could be just a matter of time, possibly before year-end.

The upcoming initial public offerings of Kakao’s two promising affiliates –KakaoBank and Kakao Pay – are reinforcing the view that the parent company’s value is set to grow further.

As of June 2, Kakao Corp.’s market cap stood at 56.37 trillion won versus Naver’s 59.63 trillion won, narrowing the difference to just a fifth of the 13 trillion won gap in early January.

Kakao’s share price surged 60.3% in the cited period, while Naver’s shares rose 23.9%, resulting in a smaller valuation gap.

Kakao Corp., the operator of Korea’s top mobile messenger app KakaoTalk, said last month its first-quarter operating profit rose 78.6% on year to an all-time high of 158 billion won, while sales increased 44.8% to a record 1.25 trillion won on robust growth of its mobility and fintech businesses.

By contrast, Naver’s first-quarter revenue rose 29.8% but its operating profit fell 1% from a year earlier, weighed by higher labor and marketing costs.

Naver’s development and operating costs increased 16.3% in 2020 and is expected to rise at a faster pace of 20.5% to 1.5 trillion won this year.

Naver and Kakao compete in various sectors to gain the upper hand.
Naver and Kakao compete in various sectors to gain the upper hand.

KAKAOBANK, KAKAO PAY SET TO BOOST PARENT’S VALUE

KakaoBank, Korea’s largest internet-only bank, kicked off its IPO process in April for a local stock market debut in the second half of this year.

Regarded as a game-changer of the banking industry, the Kakao Corp. affiliate is valued at more than 35 trillion won in the over-the-counter (OTC) market, according to OTC trading app Stock Plus.

Another Kakao affiliate, Kakao Pay, also plans to debut on the main Kospi bourse by the end of this year.

While unveiling its Kakao Pay IPO plan in April, Kakao Corp. presented the mobile fintech platform's corporate value at up to 16 trillion won, higher than the market consensus of some 10 trillion won.

If the share sale of the two affiliates goes smoothly as planned, Kakao Corp.’s market cap will exceed that of Naver, analysts said.

“Kakao (the parent)’s new businesses began making money from last year. Its profits will increase further this year, which in turn will likely put the company ahead of Naver in terms of market cap,” said Samsung Securities analyst Oh Dong-hwan.

Kakao just behind rival Naver in market cap, may overtake soon

Kakao’s revenue and operating profit are forecast to rise 41% and 83%, respectively, in the second quarter from a year earlier, according to analysts’ estimates. Naver’s second-quarter revenue is projected to fall 15.6%, although its operating profit is forecast to rise 43.6%.

NAVER FIGHTS BACK

On its part, Naver is striving to boost its enterprise value by acquiring new promising businesses.

In March, Naver said its Japanese affiliate, chat app operator LINE, and SoftBank Corp.’s Internet business Yahoo Japan, completed their merger to launch a new entity, Z Holdings.

Through the merger, Naver said it plans to transform LINE into a commerce platform just like KakoTalk.

In early May, Naver closed its 684.8 billion won purchase of a 100% stake in Wattpad, the world's largest web novel platform based in Toronto. The combination of Wattpad's high-quality content with Naver Webtoon's various paid service models will create synergy, it said.

Metaverse platform Zepeto, run by Naver Z Corp.
Metaverse platform Zepeto, run by Naver Z Corp.

The market is also paying close attention to the growth potential of 3D metaverse platform Zepeto, run by Naver Z Corp.

Following its launch in August 2018, Zepeto became the most downloaded app in the US, China and UK. Recently the app reached over 200 million users, of which 90% are from abroad and 80% are teenagers.

“Both Naver and Kakao are still at an early stage of growth as global content providers,” said Mirae Asset Securities analyst Kim Chang-kwon.

“The two companies’ growth potential over the long term is huge. There’s no doubt about it.”

Write to Sung-mi Shim at smshim@hankyung.com

In-Soo Nam edited this article.

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