Kakao’s Earnings Rebound, but AI Competitiveness Remains a Challenge [Click eStock]

Eugene Investment & Securities: "KRW 74,000 → KRW 58,000"

Shinyoung Securities: "Core Business Strengthening Remains Key" — Maintains Buy Rating

Eugene Investment & Securities has maintained its "Buy" recommendation on Kakao, which operates various businesses such as advertising, commerce, and payments based on the popular messenger "KakaoTalk," but has lowered its target price by 21.6% from KRW 74,000 to KRW 58,000. This change is due to a revision in the method for calculating the target price, reflecting one-off losses from corporate restructuring, despite notable improvements in the company’s profitability. Compared to the closing price of KRW 39,900 on August 7th, Eugene Investment & Securities sees an upside potential of 45.4%.

On the 21st of last month, Kakao union members held a rally in front of the KakaoBank headquarters in Pangyo, Seongnam, Gyeonggi Province, holding placards. Photo by Yonhap News Agency

On August 11th, Jeong Huin Jeong, a researcher at Eugene Investment & Securities, stated, "We focus on Kakao's significant improvement in earnings quality and visible progress in artificial intelligence (AI) achievements."

In the second quarter, Kakao recorded a revenue of KRW 2.1 trillion, up 9% year-on-year, and an operating profit of KRW 277 billion, up 36%, beating the market consensus (the average of analysts’ forecasts, KRW 226.3 billion). The strong performance of the platform segment, including Kakao Pay, drove profit improvements, and the burden of losses from deficit businesses declined due to the restructuring of the corporate structure. Both revenue and operating profit hit record quarterly highs.

The core growth engine is the advertising business, "Talk Biz." Talk Biz revenue reached KRW 643.2 billion, up 12% from the previous year, regaining a double-digit growth rate for the first time in four years. Advertising revenue, in particular, reached a record high of KRW 399.9 billion for the quarter, with business messaging for financial sector advertisers increasing by 20% and feed-based Talk section ads rising by 28%. Jeong pointed out, "Excluding Biz Board, display advertising (DA) revenue tripled, and its share within total DA rose to 45% — a sign that advertising products are becoming more diversified."

The easy payment service "Kakao Pay" also stood out. Kakao Pay’s revenue soared by 41%, and operating profit jumped by 528%, both hitting all-time highs. This was the major driver of the overall operating profit growth for the quarter. Commerce revenue, including the gifting and shopping segments, also recovered its growth, rising 10% to KRW 243 billion. In contrast, content division revenue edged up just 1% to KRW 868.2 billion, mainly due to a 16% decrease in story revenue as the Japanese manga platform Piccoma’s market growth stalled.

However, net profit attributable to controlling shareholders, i.e., the company's actual net income, was KRW 16.3 billion, falling well short of the consensus estimate (KRW 172.9 billion). Jeong explained, "This is a one-off factor, with KRW 180.8 billion in discontinued operations loss and KRW 165.1 billion in corporate tax expenses recognized at once during the simplification of the corporate structure." Jeong added, "From the third quarter onward, the positive effects of the restructuring should be fully reflected in the financial results." Jeong also noted that the reduction in the target price is not due to concerns about performance, but rather reflects the change in evaluation methodology — from the sum-of-the-parts (SOTP) approach to applying a 30-times multiple to the expected earnings per share (EPS) for the coming 12 months, now that the corporate structure has been simplified.

Kakao announced an Agentic AI Collaboration (A2A Partnership) with Coupang Eats, and has set targets of achieving 10 million monthly active users (MAU) for AI services within KakaoTalk by the end of the year, and aiming for a double-digit share of AI-driven revenue within Talk Biz by 2028. Jeong noted, "Changes in external traffic indicators remain limited for now, so the speed of launching linked services and the visible progress of AI achievements will be the keys for a rebound in the share price."

Shinyoung Securities Also Maintains 'Buy' — Target Price Held at KRW 70,000

On the same day, Shinyoung Securities also reiterated its Buy recommendation, maintaining its target price at KRW 70,000. Shinyoung Securities highlighted the significance of Talk Biz's double-digit growth and cost control measures in strengthening Kakao's profit base. Regarding the AI business, the company noted, "At present, it should be seen more as a mid- to long-term growth driver rather than a short-term profit contributor," adding that, since the company’s timeline for substantial AI monetization is set for 2028, its immediate impact on earnings will be limited. Shinyoung Securities assessed the KakaoTalk update scheduled for November as the company's last opportunity on a short-term basis.

This content was produced with the assistance of AI translation services.