[Market Eye] Kakao’s stock price stagnates as company struggles to regain public trust

[Market Eye] Kakao’s stock price stagnates as company struggles to regain public trust

Screenshot of Kakao’s Ryan emoticon (Kakao)

Shares of Kakao Pay fell on Wednesday morning after it was announced that its second largest shareholder, Alipay, was seeking to sell 5 million shares – around 10% of the total stake it holds in Kakao Pay – as part of of a block agreement. Kakao Pay’s stock price fell 15.57% to close at 89,500 won.

Despite the sale, the payment arm of IT giant Kakao said Alipay would continue to be a strategic investor and would remain the second-largest shareholder, with 34.72 percent of Kakao Pay’s shares, and that the two parties would continue their strong partnership.

Experts, however, said this could be the start of a bad turn of events.

An analyst at a local securities firm told the Korea Herald that the risk of over-indebtedness remains with Alipay’s block deal.

“Alipay owns much more Kakao Pay shares, so it might sell some or more of the remaining amount. This possibility of share dumping has a negative impact for other shareholders as seen in the price drop of today,” the analyst said.

Park Sang-hyun, an information provider of the independent investment research network Smartkarma, pointed out that Alipay’s return on its investment in Kakao Pay is 10 times, so it may be natural to make a profit in a certain extent.

“But the local market believes that the strategic partnership is cracking, starting with this sale of stake. It is highly likely that Alipay will go through a multi-phase stake sale process,” Park added.

The sharp decline in Kakao Pay’s share price marked the latest setback in a series of disappointments for Kakao Group over the past nine months.

In June 2021, Kakao Group became South Korea’s fifth-largest business group by market capitalization at 79.3 trillion won ($65.1 billion), behind the country’s traditional conglomerates: Samsung, SK, LG and Hyundai Motor Group.

About a month later, Kakao founder Kim Beom-su was ranked as the country’s richest person by the Bloomberg Billionaires Index. His net worth was estimated at $13.4 billion. The report says Kim is an exemplary case of how a self-made entrepreneur can succeed in Asia’s fourth-largest economy, which has long been dominated by its family-controlled conglomerates.

The tech giant, which rose to prominence with its messaging app KakaoTalk, rose through the ranks through aggressive business expansion. By the end of the first half of 2021, Kakao had more than 150 subsidiaries and affiliates inside and outside the country.

However, the heyday of the platform giant did not last long.

The company – once lauded for the legendary history of its self-made entrepreneur founder and the success of 21st century technological innovation – has suffered a series of mistakes and setbacks in recent months.

In September, Kakao’s friendly image was first criticized for the company’s rapid expansion, which reportedly pushed small traders out of business. This led to Kakao’s commitment to withdraw some of the company’s services in areas such as snacks and flower delivery.

To avoid public criticism, Kakao pledged to set up a 300 billion won fund to support small businesses and the self-employed, but his woes continued.

In the same month, the founder’s investment company, K Cube Holdings – Kakao’s de facto holding company – was accused of having private interests as well as illegal inheritance of family members in employment. More allegations piled up as K Cube Holdings was accused of fabricating regulatory documents.

Kim later apologized during a National Assembly state audit, saying the investment company would change to engage in social responsibilities.

Ironically, a series of gigantic IPO deals that further raised Kakao’s market profile revealed the root cause of his downfall.

A sell-off of Kakao Pay shares by executives including Ryu Young-joon, then nominated for Kakao’s next co-CEO, hit the company hard in January.

Ryu, who was CEO of Kakao’s mobile payment unit, Kakao Pay, exercised his stock option to sell shares of the company in December, just a month after the company listed. Through this, he and several senior executives collected a total profit of nearly 90 billion won, with Ryu taking about half of the earnings.

Kakao saw a fierce backlash from the company’s union, retail investors and the general public as executives raked in massive profits at the expense of investors. Combined with the group’s precipitous expansion that hit small businesses last year, the irresponsible decision to make money raised concerns about whether the IT group could maintain responsible corporate governance.

Kakao issued an apology, pledging to ban the CEOs and executives of its subsidiaries from selling shares of the company within one to two years after it was listed on the market thanks to the implementation of a new control tower.

In March, Kim resigned as chairman of the board, leaving behind struggling stock prices and a loss of confidence among investors.

Declining stocks

Kakao’s share price, which hit 169,500 won per share at the close of June 23, 2021, halved to just over 80,000 won per share nearly a year later. The stock prices of Kakao Pay and KakaoBank also suffered similar or worse falls, losing trillions of won in the process.

In addition to losing market confidence, the IT giant has angered its own team.

Last week, Kakao unveiled its new “metaverse” work system where employees can essentially work wherever they want. The seemingly forward-looking program, however, met with internal resistance from employees, as the new system would require you to be connected online via a voice channel at all times.

Kakao workers expressed concern and dissatisfaction with an internal online community space, saying the new policy was an attempt to spy on employees.

Kakao CEO Namkoong Whon later said in a staff announcement that the voice channel connection would be decided by crew members from different groups or work areas, but did not abandon the plan. Regarding the establishment of a mandatory working time from 1 p.m. to 5 p.m., he said that the company would reconsider the plan by communicating with the staff.

Without working to mend ties with stakeholders inside and outside the company, Kakao instead unveiled its new vision, “Kakao Universe,” on Tuesday, saying it wants to go beyond Korea. The CEO said they would seek to reach 5 billion people around the world through open ties that connect them based on their interests instead of targeting South Korea’s 50 million domestic users.

But if Kakao can’t redeem itself as the user-friendly company it once was with the rise of its dominant messaging app, experts say it will be difficult for the company to win back people’s hearts and to bounce back.

“I think Kakao’s stock prices are not doing well due to the IPO of its subsidiaries. Naver has only one entity on the stock exchange, but Kakao’s other companies have been listed in stock market, which has reinforced Kakao’s image as a company that organizes (IPOs) to sell shares to make money,” said an analyst from a local private equity firm in Korea. Herald. .

“Kakao’s growth has been through mergers and acquisitions, as well as some unethical moves, such as taking over the business of small traders. Its corporate governance is also apparently abominable,” he added.

By Kan Hyeong-woo ([email protected])

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