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Kakao's office in Pangyo, the so-called Silicon Valley of South Korea Shares of Naver Corp. and Kakao Corp. are expected to decline further after South Korea’s top two platform giants already lost 20 trillion won ($16.2 billion) in market capitalization. Their business outlook darkened on slowing online commerce growth and higher labor costs, while doubts are growing over future values of growth stocks due to more aggressive US monetary policy tightening.Their first-quarter earnings were expected to have missed forecasts, although some hoped for rebounds in the second half on new business hopes.Naver on Tuesday closed down 1.44% at 308,500 won and Kakao slipped 1.05% to 94,100 won, both underperforming a 0.98% decline in the wider Kospi. Naver’s market capitalization has shrunk 18% to 50.6 trillion won from 61.7 trillion won early this year, while Kakao's has decreased 17.7% to 42 trillion won from 51 trillion won.SLOWER GROWTHPlatform operators’ stocks have been under pressure as the US Federal Reserve is expected to raise interest rates more aggressively than initially expected, alongside increased concerns about the industry’s future. Growth in e-commerce significantly slowed as COVID-19 is predicted to become endemic.Naver’s revenue from the commerce sector was estimated to have risen 25.9% in the first quarter, less than a third of the 81% surge reported in January last year. Kakao’s sales from its KakaoTalk Biz Board, an ad service at its popular messenger app, were estimated to have increased 28.1% in the January-March period, down from 36.1% in the previous three months.Their labor costs also jumped. Naver and Kakao decided to hike salaries for all staff and executives by 10% and 15% this year, respectively.DISAPPOINTING EARNINGSSuch factors were expected to hurt their earnings. Naver’s operating profit was predicted to dip 0.2% to 350.6 billion won in the first quarter from the prior three months with sales down 2.3% to 1.9 trillion won. Kakao’s quarterly earnings may miss market consensus, some feared.“Its operating profit will be 11.5% lower than the consensus as growth in sales of advertising, commerce and pay services slowed in the first quarter. Labor costs continued to rise,” said Oh Dong-hwan, an analyst at Samsung Securities Co. Oh slashed Kakao’s target price to 140,000 won from 150,000 won.REBOUND IN H2?The platform behemoths’ stocks are likely to rebound in the second half as their new businesses are predicted to gather momentum, some estimated.Naver’s content and blockchain sectors may eventually boost its share price. Naver became the top player in Japan’s digital book market as its subsidiary LINE Digital Frontier Co. acquired a 100% stake in eBOOK Initiative Japan Co.LINE NEXT, a venture by Naver’s affiliate LINE Corp., is set to launch a global non-fungible token (NFT) platform, DOSI, in the second quarter.Kakao’s blockchains are also in the spotlight as a new growth engine. Its Klaytn is expected to be used for NFT transactions and the metaverse, while its Bora will be utilized for content such as play-to-earn (P2E) games.By Sung-Mi Shimmshim@hankyung.comJongwoo Cheon edited this article.
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