Naver, Kakao facing uncertainty amid forthcoming regulations

Kim Beom-su, the founder and chairman of Kakao, delivers a speech at the Startup Campus in Pangyo, Gyeonggi Province, May 26, 2016. Yonhap

By Lee Min-hyung

• Published Sep 15, 2021 8:32 AM KST
• Updated Sep 15, 2021 4:35 PM KST

Big tech firms hit by increased short-selling

By Lee Min-hyung

Naver and Kakao, two of the nation's largest big tech firms, are at critical moments amid steep stock price falls linked to anxieties over government initiatives to monitor and regulate them, in order to moderate their aggressive business expansions based on the domination of multiple business sectors via their platforms.

The liberal ruling Democratic Party of Korea (DPK) and the government have recently stepped up their warnings to the nation's leading internet and mobile platform operators. They argue that the government should not let the platform giants widen their revenue streams at the cost of traditional, offline, self-employed, small business owners.

The pressure has put a brake on the two firms' rosy stock growth momentum. Kakao shares have nosedived for the past week, closing at 122,500 won per share Wednesday, down 1.21 percent from a day ago. Naver was also hit hard by the uncertainty, and its stock price sharply declined, closing at 400,500 won, down 0.5 percent during the same period.

But of particular concern is that investors' negative sentiment for the two firms will likely remain in place throughout October, when the National Assembly is scheduled to kick off its annual audit, where the two firms are expected to face criticism from lawmakers on the issue.

This situation means that they may face additional declines in their stock for the next few weeks until the ruling party and the government let up from sending negative signals about the two firms.

Data also shows that investors remain agile in responding to the growing uncertainties Naver and Kakao are facing. Last week, Kakao was the most heavily shorted stock on local stock market, according to the Korea Exchange.

The amount reached 259.4 billion won ($220.48 million), the largest among all shares listed on the benchmark KOSPI and secondary Kosdaq. The total short-selling volume of Kakao's stock saw a whopping growth of 807 percent from the previous week.

The total short-selling volume of Naver's stock also came in at 92.7 billion won, up 171 percent during the same period. Foreign and institutional investors went on a selling spree of the shares, while retail investors engaged in mass buying in the hopes that the stocks would bounce back after the effects of the regulations are clarified.

A recent poll by Realmeter also showed that almost half of the population here was in favor of regulatory initiatives from the government. About 51 percent of 500 adults randomly surveyed responded that it was “appropriate” for the government to regulate the platform firms' excessive business expansions here.

Some 35 percent of those surveyed said that such regulatory moves will result in restricting the two companies' business activities, according to the poll.

Kakao, the operator of the nation's dominant mobile messenger KakaoTalk, now operates a total of 158 affiliates since it started its messenger business in 2010.

The company has become the target of criticism from the government, lawmakers and watchdog organizations, as most of the affiliates have sought to increase profits via raising fees, after slowly making inroads into traditional offline small business markets, such as beauty salons, screen golf businesses and flower delivery services, and then dominating them with the company's massive platform power. A growing number of the self-employed and small business owners have fallen prey to sales declines due to Kakao's expansion into such traditional local offline retail and services markets.

Rep. Byun Jae-il of the DPK also recently proposed a revision bill that will allow users of big tech companies and telecommunication business operators to access specific datasets from the platform giants. Under the current law, it is hard for individual users to obtain big data-related information from the dominant market players.

“Most private firms view datasets (that they obtained from users) as their private assets, and utilize them to expand their dominance,” Byun said. “Their contributions to building a virtuous cycle in the nation's data ecosystem are insufficient.”

The toughening regulatory pressure has pushed some of Kakao's subsidiaries to suspend aspects of their businesses. KakaoPay, the mobile payment subsidiary of Kakao, decided Monday to suspend its insurance sales businesses. Earlier, the company had teamed up with a group of local insurers to sell some insurance products via its platform.

This decision came in response to the Financial Services Commission (FSC)'s pressure on the firm that such services are against the financial customer protection act here.

Koh Seung-beom, the new leader of the FSC whom some view as hawkish on corporations, also reiterated his principle-oriented regulatory stance on big tech firms.

“The FSC has repeatedly expressed its willingness to maintain its current approach on big tech firms and we will continue to do so,” he said.

A representative from KakaoPay said that the company would keep reviewing whether to revise its policies from the perspective of customer protection.

“We will operate our financial services in line with the legal framework by getting a license to do so, if necessary, and we will actively review which other details we need to revise for the sake of customer protection,” the company representative said.

Kim Beom-su, the founder and chairman of Kakao, and Naver founder Lee Hae-jin, are expected to be summoned as witnesses during the upcoming National Assembly audit.