The reorganization of Kakao through a spin-off has sparked a chilly market reaction. On the 1st, Kakao announced that it would be spinning off its 'core business' into a new company, Kakao Growth, through a comprehensive property division. The newly established Kakao Growth will encompass all of Kakao's business areas, including major revenue-generating sectors such as advertising, commerce, and entertainment. In contrast, the existing Kakao will focus on its core platform business, including KakaoTalk, Naver, and other services. Following the spin-off, Kakao's market value has decreased. As of 1 pm on the 1st, Kakao's stock price was 43,850 won, down 1,700 won (3.73%) from the previous day. The market capitalization of Kakao, which was ranked 4th in market capitalization on the 28th of last month (approximately 19.3 trillion won), has now dropped to 5th place, with a market capitalization of 18.1 trillion won. The market's reaction to Kakao's spin-off plan has been lukewarm. The stock price of Kakao, which had been trading at around 46,000 won until last week, began to decline after the announcement of the spin-off plan on the 22nd of last month. Industry experts point out several reasons for the market's negative response. First, concerns have been raised about the governance structure of Kakao and Kakao Growth. The existing shareholders of Kakao will maintain their stake in the company, but new management will be introduced, and the exact equity relationship between Kakao and Kakao Growth has not been disclosed. An official from a securities firm stated, "The existing shareholders of Kakao will continue to bear the business risks of Kakao Growth, but they will not have control over the new company." Furthermore, there are concerns that the spin-off may not be as straightforward as expected. The plan for Kakao Growth to be listed on the stock market has not been finalized, and there is a possibility that Kakao Growth may not be listed within the initially planned timeframe. An industry insider noted, "The market has priced in the possibility of a spin-off, but there are still many uncertainties, such as the listing of Kakao Growth and changes in the governance structure." In addition, there are concerns that the spin-off may lead to an increase in Kakao's financial burden. The spin-off plan involves not only the division of businesses but also the allocation of existing debts. Kakao's total debt as of the end of last year was 1.1 trillion won. It is expected that a significant portion of this debt will be transferred to Kakao Growth. A securities firm official stated, "The market has high expectations for Kakao's growth, but the spin-off plan has raised concerns about the company's financial structure and governance." On the other hand, some analysts believe that the market's reaction is an overreaction. They argue that the spin-off will improve Kakao's corporate value. A researcher at a securities firm stated, "The spin-off will allow Kakao to focus on its core platform business and enhance its growth potential." However, as of now, the market's reaction to Kakao's spin-off plan remains lukewarm.
Kakao is pursuing a 'restructuring' by separating its KakaoTalk-based AI, advertising, and e-commerce operations into a new company. This move aims to address the 'multifaceted business discount' issue and ensure that each company's business value is properly evaluated. However, initial market reactions to this proposed restructuring have been cold.
Unlike the newly established company, the existing one has uncertain growth prospects, which is why the company decided to split financially. The split ratio is based on the net asset value of Kakao, with KakaoAI receiving 0.36 and KakaoX getting 0.64. After the announcement, Kakao's stock closed at 35,800 won, down 7.49% from the previous trading day.
The reasoning behind Kakao expecting the business value of the two companies to increase through this restructuring is based on the potential value that investment firms have assessed and the disparity between the market capitalization. According to Kakao's research center, the combined potential value of Kakao is 34.2 trillion won, while the current market capitalization of Kakao stands at 16.8 trillion won, indicating that it is being 'undervalued' in the market.
The key challenge for KakaoX following the separation is ensuring its growth. With KakaoAI accounting for 45-58% of the group's operating profit in the last fiscal year, analysts have pointed out that KakaoX needs to find new core businesses or investments to boost its company value after the split. KakaoX has proposed future growth areas such as virtual assets (techni), global fandoms (content), and autonomous taxis & logistics (mobility).
However, if KakaoX fails to show the expected growth after the listing, the combined market capitalization of KakaoAI and KakaoX might not match the pre-split Kakao's stock, indicating a potential issue.
Written by urgent.news from Hankyoreh's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
