From a stock price plunge from 160,000 won to 30,000 won, Kakao makes a bold move to secure fair value

사진 확대 Shina Chung, CEO of Kakao Corp. [News 1]

Kakao Corp. has launched an unprecedented overhaul of its governance structure, aiming to strengthen future growth engines centered on artificial intelligence (AI) services. Defying market expectations that it would convert into a holding company, the company instead split into separate entities, Kakao AI and Kakao X. The move is being interpreted as a sign that Kakao wants its undervalued corporate worth to be properly recognized.

On the 21st, Kakao Corp. held a board meeting and approved a plan for a spin-off that will separate the company into the newly established Kakao AI and the surviving Kakao X. Kakao AI will generate revenue around KakaoTalk and Kanana, while Kakao X will be transformed into an investment company housing its fintech affiliates.

Companies usually carry out spin-offs to establish holding companies or separate affiliates, so Kakao’s choice is unusual. The company said it is pursuing a new governance structure to address delayed decision-making and eliminate inefficiencies in capital allocation.

Kim Beom-soo, founder of Kakao Corp., said, “In the mobile era, Kakao was the first to leap into uncharted territory, create innovation, and change users’ daily lives.” He added, “The AI era demands a completely different level of agility, so we will redesign our growth structure with two engines, Kakao AI and Kakao X, and work to ensure that the results are transparently returned to shareholders, users and crew members.”

사진 확대 [Kakao]

In the securities industry, Kakao’s spin-off decision is being seen as an attempt to revalue the company. According to the consensus sum-of-the-parts valuation (SOTP) from domestic and overseas brokerages, the Kakao Group’s average implied value stands at 34.2 trillion won. That is 17.4 trillion won higher than Kakao’s average market capitalization of 16.8 trillion won over the past three months, creating a valuation gap.

Kakao has faced management difficulties amid a series of controversies, including split listings, allegations of executives cashing out, the founder’s arrest, and the spillover of affiliate risks. Its stock once climbed above 160,000 won per share and was regarded as a must-own stock for retail investors, but it is now trading in the 35,000-won range. As of June, its return on equity (ROE) of 4.6% was below its cost of equity (COE) of 8.4%, while its price-earnings ratio (PER), which stood at around 80 times in 2021, has fallen to an estimated 21.9 times this year.

Several capital market sources said that once the spin-off is completed and the performance and financial data of Kakao AI and Kakao X are accumulated independently, the value of each business will become clearer. They added that investors will also be able to weigh the merits of Kakao AI as a growth stock and Kakao X as a value stock.

This article has been translated by GripLabs Mingo AI.