Kakao’s Stock Keeps Falling, and So Do Analysts’ Price Targets

[Financial News] As the stock price continues to fall, securities analysts are also lowering their price targets. This is the story of Kakao, one of South Korea’s leading information technology (IT) companies.
IBK Securities lowered its price target for Kakao on the 21st from 73,000 won to 53,000 won, a 27.4% reduction. The move appears to reflect the company’s planned spin-off and the uncertainty expected in its early stages.
Lee Seung-hoon, an analyst at IBK Securities, said, "The price target was calculated by applying a price-to-book ratio (PBR) of 1.8 times, the average level over the past two years, to next year’s estimated book value per share (BPS." He added, "Uncertainty is expected to increase in the early stages of the spin-off, and it will also take time to restore weakened investor sentiment."
Regarding the spin-off, he noted, "This is a necessary process for efficiently reorganizing the company’s existing business and subsidiary structure, which has become intricately entangled." He added, "The direction of the stock price will depend on how perfectly the established plan is carried out."
At a board meeting on the 21st of last month, Kakao decided to pursue a spin-off, allocating 64% of its net asset book value to Kakao X and 36% to Kakao AI. Kakao X will manage and invest in subsidiaries, while Kakao AI will oversee platform businesses such as KakaoTalk.
Lee stated, "KakaoTalk and its artificial intelligence (AI) business have been undervalued because complex and inefficient businesses had been mixed together. This spin-off is expected to eliminate the factors behind that undervaluation."
He continued, "The company will establish an efficient capital allocation system by shedding the burden of supporting existing noncore subsidiaries." He added, "As the social responsibility burden associated with KakaoTalk is confined to Kakao AI, the group’s strategic flexibility will be maximized."
Lee said, "While Kakao AI takes full responsibility for the heavy obligations of operating a platform and secures stability, Kakao X will be able to pursue subsidiary investments and identify new businesses more boldly through independent decision-making."
[email protected] Han Young-jun Reporter