Kakao Withstands Market Rout After $108 Million Share Buyback Cancellation, but Target Prices Are Halved

Kakao rises on plan to cancel $108 million of treasury shares

Brokerages cut target prices across the board

“AI monetization must be proven first”

Kakao rebounded on news that it will buy back and cancel $108 million worth of treasury shares, supported by growth in its advertising and commerce businesses. The stock rose 9.68% this week despite a broader market selloff. Even so, brokerages turned more cautious and cut their target prices in a wave. For the rally to continue, analysts say Kakao still needs to prove its artificial intelligence business can generate real revenue.

Rebound on treasury-share cancellation... up 9.68% this week

According to the Korea Exchange, Kakao closed at 32,300 won on Nov. 6, up 100 won, or 0.31%, from the previous session. While the Kospi fell 11.71% this week, Kakao gained 9.68%. The shares surged 10.65% on Nov. 5 alone, when the company announced earnings and its treasury-share cancellation plan.

The gains appeared to be driven by shareholder returns and growth in the core business. Kakao said on Nov. 5 that it will buy back $108 million worth of treasury shares and cancel all of them. The company plans to split in February next year into Kakao X, the surviving entity that will handle investments and subsidiary management, and Kakao AI, a newly created company that will oversee KakaoTalk-based AI operations. The latest cancellation brings forward half of a $216 million plan that Kakao X had intended to carry out after the split.

Third-quarter consolidated revenue rose 6% from a year earlier to $1.50 billion. Operating profit climbed 7% to $173 million. Revenue from the core platform unit increased 16% to $889 million. Display advertising revenue and commerce gross merchandise value rose 35% and 13%, respectively. Standalone operating profit advanced 17% to $84.8 million.

Expectations for an AI service launch later this year also added support. Kakao will begin a pilot of “Kanana Space,” an AI service based on KakaoTalk, next month. The service is designed to connect KakaoTalk’s internal functions with outside services through AI. Kakao also said it aims to secure 10 million monthly active users for its AI service by year-end and reach break-even in the AI business by 2028.

Target prices cut in a wave... “AI monetization must be proven”

Brokerages, however, have lowered their expectations. Ten securities firms cut Kakao’s target price this week. Meritz Securities lowered its fair value estimate to 36,000 won, while DAOL Investment & Securities cut its target price to 40,000 won. The average target price compiled by FnGuide, a financial data provider, fell to 46,682 won, down 42.37% from 81,000 won at the time of forecasts for fourth-quarter results last year.

The view is that more time is needed for AI monetization and a recovery in content despite growth in the core business. Third-quarter operating profit missed the market forecast of $179 million by 3.2%. Platform revenue rose 17%, while content revenue fell 6%. The AI services unit posted an operating loss of $46.1 million, widening by $13.0 million from a year earlier.

Jeong Eui-hoon, an analyst at Eugene Investment & Securities, said he lowered his target price-to-earnings ratio to 25 times from 30 times to reflect a delay in the timing of validation for agentic AI monetization.

There is also a view that drawing KakaoTalk users into AI services will not be enough on its own and that the company must convert that traffic into actual advertising and transactions. Ko Jun-hyuk, an analyst at Shinhan Securities, said growth driven by new ad inventory and an influx of small and midsize advertisers is positive, but the stock’s direction will depend entirely on Kanana Space.

Some analysts also see the rebound as part of a sector rotation. Lee Hyo-jin, an analyst at Meritz Securities, said part of the money concentrated in semiconductor stocks over the past two years appears to be rotating back.

Expanded AI investment and stronger shareholder returns after the spinoff could also lead to a re-rating. Kim So-hye, an analyst at Hanwha Investment & Securities, said that at the current depressed share-price level, investors should focus less on short-term volatility tied to AI agent business results and more on whether increased AI investment and stronger shareholder returns after the split translate into management performance over the medium to long term.

Kim Yeon-ji, Hankyung.com reporter kongzi@hankyung.com