Market capitalization evaporates 47 trillion won in 2 years… I want to escape, the tears of the ants

How far will Nekao fall?
Market capitalization fell from close to 98 trillion won to 50 trillion won

The combined market capitalization of Korea’s leading technology stocks, Naver and Kakao, has evaporated by more than 47 trillion won in two years. Naver’s stock price was cut in half due to various negative factors such as pressure to sell shares of its Japanese line amid the recent offensive by Chinese e-commerce companies such as Ali, and Kakao’s stock price was cut in half due to various negative factors such as suspicions of accounting violations by its subsidiary Kakao Mobility. The combined market capitalization, which once exceeded 98 trillion won, has now shrunk to around 50 trillion won.

According to the stock market on the 25th, Naver and Kakao plummeted 66% from their recent highs. Naver and Kakao ended trading today at 182,700 won and 47,400 won, respectively. Naver fell 60.71% from its highest price of 465,000 won in July 2021, and Kakao fell 72.60% from its highest price of 173,000 won in June 2021. The two stocks emerged as beneficiaries of the coronavirus outbreak in 2020, and their stock prices soared to record highs in over a year. Since the emergence of ChatGPT, it has attracted attention as an expected artificial intelligence (AI) stock, but its stock price continues to show a sluggish trend.

The recent business environment surrounding Naver is not easy. This is because the advertising market, which determines performance, is showing a slow recovery due to the economic downturn, and Chinese ultra-low-cost e-commerce platforms Ali and Temu are expanding their domestic influence. In the case of the search platform, which accounts for the largest portion of Naver’s performance, sales only increased by 0.6% last year compared to the previous year (2022). In addition, the Japanese government has recently added pressure to reduce Naver’s stake in Line Yahoo due to the personal information leak, putting a burden on the stock price. Line Yahoo is owned half by Naver and Japan’s Softbank. If Softbank increases its stake in Line Yahoo at the request of the Japanese government, there is a risk that Naver may lose management rights.

In the case of Kakao, the company was hit by a double whammy of disappointment with its new AI business, management’s judicial risk, and allegations of Kakao Mobility accounting fraud. Depending on differences in interpretation of accounting standards, Kakao Mobility’s annual sales over the past three years may decrease by 30-40% each. New AI businesses are also not picking up speed due to management’s judicial risk. Kakao announced the launch of its large-scale language model (LLM) ‘CoGPT 2.0’ in the second half of last year, but has postponed the launch until now.

Even the performance forecasts surrounding Naver and Kakao, which are scheduled to announce their first quarter earnings next month, are conflicting, so investment sentiment is wavering. Jeong Ho-yoon, a researcher at Korea Investment & Securities, said, “It is unfortunate that if Naver Line Yahoo’s shareholding ratio is reduced, it will miss out on the benefits of the growth of the Japanese Internet market. However, as performance is expected to exceed expectations in the first quarter of this year, the target price is maintained at 270,000 won.” “I do it,” he said.

Kakao recently launched a large-scale organizational reorganization, including establishing an AI-dedicated organization and recruiting Lee Sang-ho, former chief technology officer (CTO) of SK Telecom. There is analysis that there is a 50% upside potential from the current stock price level due to expectations of an AI strategy to be unveiled in the future. Lee Jun-ho, a researcher at Hana Securities, said, “Kakao plans to provide a generative AI introduction service with a hybrid AI strategy,” and judged, “Management’s announcement of a specific strategy can act as a momentum (growth engine).” Hana Securities presented Kakao’s target stock price at 72,000 won. According to reports released by securities companies this month, the target stock prices for Naver and Kakao are as high as 300,000 won (Heungkuk Securities) and 80,000 won (Hyundai Motor Securities).

Reporter Jo A-ra [email protected]