Naver, Kakao disappoint small investors with slumping performances

Naver headquarters in Seongnam, Gyeonggi Province / Newsis

Once referred to as "national stocks," shares of Naver and Kakao are disappointing investors with sluggish performances this year. Securities firms have consistently reduced the target stock prices for both tech giants, predicting their third-quarter results will fall short of market expectations.

According to the Korea Exchange, Naver's stock price has seen a 6.5 percent decrease from the start of the month to Tuesday, falling from the 200,000 won ($147.8) range to the 180,000 won range. Kakao's stock dipped by just 2.63 percent during the same period, but is wavering in the 42,000 won range. Notably, on Oct. 6, it hit a 52-week low at 40,600 won.

Until last month, Naver had secured its spot in the top 10 by market capitalization. However, since the beginning of this month, it has slipped to the 11th position. Similarly, Kakao, which started last month in 14th place, is currently at 17th.

Concerns persist as both companies' third-quarter results might underperform market expectations.

"Naver's third-quarter operating profit is projected to be 352.3 billion won, a 5.5 percent decrease from the second quarter, slightly missing the market's expected 370 billion won," said Lee Ji-eun, an analyst at Daishin Securities. "This is attributed to a sluggish advertising market and an increase in marketing expenses for the webtoon sector."

"The stock price may see an upward trend with the growing anticipation of performance improvements once the scale of newly added revenue becomes slightly visible. However, until the third-quarter earnings season, the stock price is expected to remain flat."

Seoul Metropolitan Police search Kakao's Pangyo branch in Seongnam, Gyeonggi Province, July 3. Newsis

The situation for Kakao seems bleaker due to legal challenges. These include an investigation by the Financial Supervisory Service (FSS) into stock price manipulation allegations during its acquisition of SM Entertainment, and probes related to founder Kim Beom-su over claims of embezzlement and breach of trust in dealing with virtual asset, Clay.

According to market tracker FnGuide, Kakao's third-quarter operating profit is projected to be 147.1 billion won, a 2.14 percent decrease compared to the same period last year. This decline is attributed to the economic recession and the firm's expansion into new markets, such as AI and cloud services.

"Currently, Kakao is grappling with multiple lawsuits and inquiries from both the prosecutors' office and the FSS, leading to a diversion of management attention," said Oh Dong-whan, an analyst at Samsung Securities. "Furthermore, controversies surrounding technology misappropriation from startups have arisen with subsidiaries such as Kakao VX, Healthcare and Mobility. Considering these ongoing probes, Kakao's status as a major shareholder of KakaoBank might also be jeopardized."