Naver, Kakao Price Targets Cut Again as AI Hopes Fade Despite Share Rebound

AI Laggards Naver and Kakao Face Another Round of Target Cuts

Brokerages Lower Their Price Views on Korea’s Internet Giants

Expectations for Naver’s AI Businesses Have Faded

Nine of 11 brokerages cut Naver target prices

Kakao target lowered to 65,000 won from 75,000 won

Operating profit forecasts for the two companies down 4% and 10%

South Korea’s leading internet companies, Naver and Kakao, are facing another round of price-target cuts from brokerages as disappointment builds over their lack of tangible results in artificial intelligence. The two stocks rose together on June 14, but both remained below half of their 2021 record highs.

◇ Falling Behind the Pace of AI Development

Major brokerages have lowered their price targets for Naver and Kakao this month. The cuts come as fears spread across the platform sector that AI could displace software companies.

DS Investment & Securities cut its target price for Naver to 300,000 won from 400,000 won on June 14. Choi Seung-ho, an analyst at the firm, said “AI derating” would likely deepen further given the pace of AI development and the rapid advance of global AI platforms. Shinhan Securities also lowered its target to 240,000 won from 270,000 won, saying expectations tied to AI and virtual assets had faded. Daol Investment & Securities was among the firms that reduced their targets, cutting its view to 300,000 won from 360,000 won. In all, nine of the 11 brokerages covering Naver have lowered their targets this month.

For Naver, the key issue is whether its commerce business can offset disappointment over AI. Choi said the segment could emerge as a new growth driver, helped by the consolidation of Wallapop, the Spanish secondhand marketplace, and double-digit growth at North American fashion platform Poshmark. He projected the commerce division’s transaction value at 2.7 trillion won this year.

Kakao’s target prices are also moving lower. DS Investment & Securities cut its target to 65,000 won from 75,000 won, the lowest among recent brokerage targets for the company. Shinhan Securities reduced its target to 75,000 won from 80,000 won, while SK Securities lowered its view to 74,000 won from 87,000 won. Kang Seok-oh, a senior analyst at Shinhan Securities, said Kakao’s AI business was advancing too slowly. Delays in commercialization and monetization are hurting earnings forecasts.

KakaoTalk is expected to support Kakao’s earnings. Kang said Talk Biz advertising added to KakaoTalk would likely grow more than 15% as demand increases. Still, Choi said it was hard to be optimistic because KakaoTalk needs to evolve from a messaging app into a super app, and consumer response to last year’s update was poor.

◇ Shares Rise, But Still Far From Their Highs

Naver and Kakao shares both rose on June 14. Naver closed at 201,500 won, up 1.26% from 199,000 won a day earlier. Kakao gained 2.34% to finish at 48,100 won. Even so, both underperformed the Kospi index, which rose 2.74%.

Both stocks also remain well below their previous highs. Naver hit 454,000 won in September 2021, or 2.25 times its June 14 closing price. Kakao climbed to 163,000 won around the same period and is now trading at less than 30% of that peak.

Earnings expectations are falling as well. According to Epic AI, an AI-based investment information service, consensus for Naver’s operating profit this year has been cut about 4% to 2.4458 trillion won from 2.54 trillion won at the end of last year. Revenue consensus slipped 1% over the same period to 13.3975 trillion won from 13.5204 trillion won.

Kakao’s consensus has fallen more sharply. Operating profit for this year had been expected to exceed 1 trillion won as recently as the end of last year, at 1.0224 trillion won, but that estimate has since dropped 10.3% to 917.3 billion won. Revenue consensus was lowered 6.2% to 8.6752 trillion won from 9.25 trillion won.

Kang Jin-kyu, Korea Economic Daily reporter josep@hankyung.com