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Photo courtesy of Yonhap News |
[Alpha Biz= Ellie Kim] Market sentiment toward South Korea’s leading platform companies Naver and Kakao is diverging, with global investment bank CLSA identifying Naver as an undervalued AI play while taking a more cautious stance on Kakao.
According to the financial investment industry on June 16, CLSA resumed coverage on both companies after about 10 months, assigning an “outperform” rating and a target price of 300,000 won for Naver, while maintaining a “hold” rating and a 42,000 won target for Kakao.
CLSA significantly upgraded its view on Naver, raising its target price by 50% from 200,000 won previously and revising its recommendation upward by three notches from “sell.” In contrast, it maintained a neutral stance on Kakao and lowered its target price by about 31%.
Recent stock performance has also diverged. While both companies posted weak year-to-date returns through mid-May, Naver rebounded sharply on expectations tied to a meeting with Jensen Huang and potential collaboration in global AI factory initiatives. Despite a recent pullback, Naver has still gained over 19% in the past month.
Kakao, on the other hand, has struggled to find upward momentum, weighed down by labor disputes and a lack of clear catalysts, declining about 8% over the same period.
CLSA highlighted that concerns over Naver’s increased AI investment and intensifying competition in the search market have been overdone, making it a preferred pick in Korea’s internet sector. The firm noted that Naver is trading at a forward price-to-earnings ratio (PER) of around 15.6x for 2027, near the lower end of its historical valuation range.
The brokerage expects Naver’s core businesses to remain solid, driven by growth in advertising revenue supported by AI enhancements and expansion in e-commerce transaction volume. Although higher depreciation from infrastructure investment may weigh on short-term margins, CLSA forecasts double-digit growth in both revenue and operating profit over the next three years.
For Kakao, CLSA said the current valuation appears fair despite a more than 30% decline in share price this year. It expects operating margins to improve from around 9.0% to 12.1% by 2028 through cost-cutting measures, including reductions in labor and marketing expenses and restructuring of loss-making businesses. However, the firm sees limited scope for multiple expansion in the absence of clear short-term growth drivers.
CLSA also expressed caution over Kakao’s key business initiatives. Its generative AI search service “Kanana” remains in the beta stage, with its competitiveness and monetization potential yet to be proven. Meanwhile, agent-based commerce is unlikely to deliver meaningful results until the second half of the year at the earliest.
Alphabiz Ellie Kim 인턴기자(press@alphabiz.co.kr)
