Yonhap News
The industry’s outlook on Korea’s leading platform companies, Naver and Kakao, is diverging. Global investment bank CLSA named Naver (035420.KS) as a top undervalued stock weighed down by excessive concerns over artificial intelligence (AI) investment, while diagnosing Kakao (035720.KS) as lacking the momentum to drive further share price gains despite improving earnings.
According to the financial investment industry on Tuesday, CLSA recently resumed coverage of Naver and Kakao after about 10 months, assigning Naver an “outperform” rating with a target price of 300,000 won, and Kakao a “hold” rating with a target price of 42,000 won. CLSA had given Naver a target price of 200,000 won and a “sell” rating last August, but this time raised the target by 50% and upgraded its investment opinion by three notches. By contrast, for Kakao, it maintained the same hold rating as in July last year while lowering the target price by about 31%.
The recent share price movements of the two companies have diverged. As of mid-last month, year-to-date returns for Naver and Kakao stood at -16.08% and -26.79%, respectively, both languishing. Naver subsequently rebounded on expectations of a meeting with Nvidia CEO Jensen Huang, and posted a large gain as the potential for expanding its reach, including a joint global AI factory project, came into focus. While it is undergoing a short-term correction as those expectations have faded, its return over the past month still exceeds 19%. Kakao failed to find a catalyst for a rebound as strike issues stemming from labor union conflicts surfaced, plunging 8% over the same period.
CLSA named Naver as its preferred stock within the domestic internet sector, citing that it is excessively undervalued due to concerns over expanding AI investment and intensifying competition in the search market. According to CLSA, Naver’s projected price-to-earnings ratio (PER) for 2027 stands at just 15.6 times, trading at the bottom of its historical valuation band.
Naver’s core business competitiveness was also assessed as still solid. CLSA noted that earnings improvement would continue, driven by growth in advertising revenue through AI advancement and expansion in commerce transaction volume. While short-term profit margins may decline due to increased depreciation from infrastructure investment, the forecast is for revenue and operating profit to maintain double-digit growth over the next three years, supported by growth in the advertising and commerce segments and AI monetization.
Regarding Kakao, CLSA viewed the current valuation as largely appropriate, even though the share price has undergone a correction of more than 30% this year. CLSA expects Kakao’s operating profit margin to jump from the current 9.0% level to 12.1% by 2028, through reductions in labor and marketing costs and the wind-down of loss-making businesses. The judgment is that with limited clear short-term growth catalysts, there is little room for a multiple re-rating driven by cost-cutting effects.
CLSA also drew a line, saying Kakao’s main businesses currently drawing market attention still require verification. Kanana, a generative AI search function, remains in beta service, and the assessment is that it is far from proving its service competitiveness and revenue model. Agent commerce was also seen as capable of generating meaningful results only after the second half of this year.
In the domestic securities sector as well, nine local brokerages raised their target prices for Naver over the past month, while three lowered their target prices for Kakao. “This year, Kakao is in a period of simplifying its governance structure and improving the completeness of its AI agents, but it appears it will take time before results become visible,” said Kim Hye-young, an analyst at Daol Investment & Securities.