Market cap

Naver and Kakao shares lose W63tr in market capitalization

Naver and Kakao, the tech stocks that had rocked the market during the COVID-19 pandemic, have recently become major disappointments for investors, losing more than 63.3 trillion won ($44.4 billion) in market value since the beginning of the year.

Naver, South Korea’s top search engine operator, has fallen 57% since the first trading day of the year. Its shares rose from 376,000 won on Jan. 3 to 160,000 won on Friday, boosting its market capitalization from 62.9 trillion won to 26.2 trillion won during the same period.

Naver’s industry rival and operator of the country’s most popular messaging app, Kakao’s shares fell about 54% – from 114,500 won to 50,900 won – during the cited period. Its market capitalization has increased from 50.1 trillion won to 22.6 trillion won in the meantime.

The two were among 343 of a total of 2,531 listed on the Kospi and Kosdaq – accounting for 13.55% of the total – who have seen the value of their shares halve over the past year, the data shows. of stock market operator Korea Exchange.

The average 55% drop in their share price in the first 10 months of the year eclipses the 25% slide in the benchmark Kospi index from 2,988.77 to 2,232.84 during the same period. . Over the past few months, the Kospi has been weighed down overall by risks stemming from the recent round of aggressive rate hikes by the US Federal Reserve to combat high inflation.

In order to recoup both their market value and investor love, the two tech giants now need to take groundbreaking steps to bolster their global competitiveness, analysts say.

“Naver’s biggest weakness is its global reach, but thanks to its latest acquisition of Poshmark, it has gained an e-commerce platform and user base in the US market,” said Ahn Jae-min. , analyst at NH Investment & Securities.

Naver’s decision last week to acquire a 100% stake in US fashion social commerce marketplace Poshmark for 2.3 trillion won could work in the tech giant’s favor in the long run, but the stock price the company’s stock fell to a new low for the year following the announcement. The stock price fell 7.08% to 164,000 won on Wednesday, a day after the company announced the takeover.

“The latest acquisition will lead to a larger global e-commerce portfolio, but it is inevitable that Naver will be negatively affected by the expected operating loss after the deal is finalized. On top of that, it has already shown signs slowing growth in its advertising and e-commerce business,” Ahn added.

NH Investment&Securities recently lowered Naver’s target price to 270,000 won from 360,000 won previously.

During this time, Kakao battled risks arising from subsidiaries such as Kakao Bank, Kakao Pay and Kakao Games, as well as obstacles created by unfavorable market conditions.

From January 3 to Friday, the share price of Kakao’s mobile bank, Kakao Bank, fell 68.9% to 18,350 won, the payment leg Kakao Pay fell about 77% to 40,100 won and Kakao Games fell 56.48% to 39,600 won.

Citigroup recently lowered Kakao Pay’s target price to 38,000 won and recommended selling the company’s shares. It predicted that Kakao Pay’s quarterly operating profit would continue to decline through 2023 and mentioned the risks associated with Alipay’s continued dumping of its shares.

Alipay’s decision to dump 5 million shares of Kakao Pay in June shocked investors, interpreting it as a signal of weakening ties between the Korean e-payments company and the payments arm of Ant Group. based in Hangzhou. Alipay Singapore Holding remained the second largest holder of Kakao Pay, holding 34.72% as of the end of June.

“Kakao is working to protect its profitability by minimizing its downsizing, hiring, and webtoon marketing as its ad revenue is expected to decline for the rest of the year,” said Oh Dong-hwan, an analyst at Samsung Securities.

“If the current economic downturn continues, the value of its subsidiaries and affiliates is expected to decline further.”

Naver’s second-quarter net profit was 158.5 billion won, down 70.7% from a year earlier, according to a regulatory filing. Operating profit for the April-June period was 336.2 billion won, up 0.2 percent year on year.

Kakao’s net profit over the same period fell 68% to 101.2 billion won. Operating profit rose 5.2 percent year on year to 171 billion won.

Naver and Kakao were the best performing stocks during the COVID-19 market rally here, favored by retail investors looking to invest in Korea’s own “Amazon and Tesla” stocks.

By Jung Min-kyung (mkjung@heraldcorp.com)