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Kakao becomes 3rd most valuable company in Korea

Investors are positive about its ventures into the finance, mobility and e-commerce sectors

By Jun 15, 2021 (Gmt+09:00)

Kakao Friends, Kakao's featured characters frequently used on Korea's most-popular KakaoTalk messenger.
Kakao Friends, Kakao's featured characters frequently used on Korea's most-popular KakaoTalk messenger.

Kakao Corp. is now the third most valuable company in Korea, after Samsung Electronics Co. and SK Hynix Inc.

Kakao’s market cap on June 15 surpassed that of its archrival Naver Corp. for the first time in terms of their closing prices. The company had already exceeded Naver on Kospi for a brief period during the June 14 trading session.

Kakao’s valuation currently stands at 64.2 trillion won ($57.4 billion) after rising by 1.40% on Tuesday, versus 63.6 trillion won ($56.9 billion) of Naver, whose stock price remained unchanged on the same day.

Kakao’s year-to-date stock price growth rate is 85% compared to Naver’s 32%.  

THE RIVALRY: KAKAO VS. NAVER

Analysts note that Naver’s revenue and operating profit are still higher than those of its rival. Naver’s last year revenue was 5.3 trillion won ($4.7 billion) compared to around 4.2 trillion won ($3.8 billion) by Kakao.

The discrepancy is even larger in terms of profit.

Naver’s operating profit in 2020, which recorded 1.2 trillion won ($1.07 billion) was almost three times that of 456 billion won ($408 million) by Kakao.   

But Kakao is the winner in terms of the growth rate of operating profit. Its operating profit last year grew by 120.5% from 2019, whereas Naver’s growth rate during the same period was only 5.2%.

Likewise, Kakao’s first-quarter operating profit this year grew by 78.6% from that of the same period in 2020, whereas Naver’s growth rate was 1.03%.

Many analysts also highlight that Kakao has more presence in different business segments, currently having more than 110 affiliates versus around 40 of Naver.

“Its key affiliates including Kakao Pay and Kakao Mobility are expected to come out of the red and make positive turnarounds this year. Investors are likely to maintain a positive outlook on Kakao,” said Hana Financial Investment Co.

Kakao’s decision to split its stock five-for-one in April also provided another positive momentum. The stock splits typically attract a higher number of shareholders as the unit price of the stocks becomes cheaper.

Kakao’s stock price grew by around 30% after its split.

KAKAO-KAKAO COMMERCE MERGER

Some say Kakao’s decision to re-merge with its e-commerce affiliate Kakao Commerce Corp. will further boost its valuation.

According to industry sources on June 14, Kakao Commerce will merge back to its parent company following approval at the board meeting scheduled next week.

Kakao Commerce, which became a separate entity in December 2018, will still be operated under a company-in-company (CIC) model, which has become an increasingly popular method of management in Korea.

The CIC model grants autonomy to a business unit within the company as if the unit was a separate firm. The current Kakao Commerce CEO Hong Eun-taek will continue to lead Kakao’s e-commerce unit even after the merger.

But Kakao said the newly acquired fashion platform Zigzag will operate as a separate entity after a spin-off planned next month.

KAKAO’S E-COMMERCE PLAN

Kakao will launch a new service tentatively called the Kakao Store in the latter half of 2021 in a move to enter the open market platform business, just like Naver and Coupang.

Kakao so far had a presence in the e-commerce market as a special-type market platform, which only offers a limited range of services such as gifting, group purchase and advance purchase.

Kakao says the revenue model of its Kakao Store will be different from that of Naver, which takes commissions from the sellers using its platform. Kakao Store, on the other hand, will have zero commission and will provide customer data to the sellers as well. Advertising will be Kakao Store’s revenue model.  

As Kakao is planning to have a wider presence in the domestic e-commerce scene, a significant change in strategy from its previous focus on niche segments such as group purchases, analysts say that the market shares held by the firms are likely to change. 

Naver’s share of the Korean e-commerce market is 18%, followed by 13% of Coupang. Kakao only has 2%.

“Kakao’s entry to the open market platform business will intensify the competition,” said a tech industry official.

Write to Tae-hoon Lee and Min-ki Koo at beje@hankyung.com

Daniel Cho edited this article.

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