Kakao, Naver malfunctions leave investors shuddering

South Korea’s retail investors on Sunday were grappling with the fear that the much-favored tech shares of Kakao and Naver might suffer another round of massive falls after their service malfunctions shocked the nation over the weekend.

A fire broke out on Saturday at an SK C&C building housing data centers of the two internet giants and disrupted operations of their popular services, including messenger app KakaoTalk and taxi-hailing app Kakao T, for more than 10 hours.

As of 2 p.m. on Sunday, many of the services remained limited.

KakaoTalk, the nation's No. 1 messenger app, enjoys a near monopoly here, with 45.6 million out of the total 52 million population using the app to chat and access other affiliated services, from payments to ride-hailing.

Its crosstown rival Naver may have suffered less severe damage, but its popular shopping and blogging services were down for hours as well.

The worst-ever service malfunctions made retail investors shudder, as they were concerned new risks could further weigh down share prices. Both stocks hit 52-week lows on Thursday.

"Kakao stocks could suffer at least a 10 percent drop on Monday because the incident made many realize there are alternatives to KakaoTalk while giving them a wake-up call of their heavy reliance on it," a Kakao shareholder wrote on Blind, an anonymous workplace community app, Sunday.

Both Naver and Kakao have seen their stock prices tumble almost 30 percent over the past month alone, with skepticism growing over their future growth drivers while their current profit sources focused mainly on the saturated home market.

Naver shares dropped 30.61 percent in the past month to 165,500 won ($114.80) on Friday, after slipping to a 52-week low of 155,000 during Thursday’s trading. Kakao shares, meanwhile, fell 26.57 percent in the past four weeks to close at 51,400 won on Friday.

Despite their plummeting share values, the two were highly coveted by retail investors in the last four weeks. They bought a net 812.1 billion won of Naver shares from Sept. 14 to Friday, making the portal giant their No. 1 purchase. Foreign investors dumped a net 883.2 billion won of Naver shares in the same period.

Kakao shares worth a net 156.1 billion won were purchased in the cited period, making the messenger app operator their third favorite stock. Meanwhile, foreign investors offloaded a net 56.4 billion won in the cited period.

At this point, Monday’s market looks bleak, with the risks stemming from the tech shares combining with a broad slide observed on major indexes on Wall Street. The S＆P 500 fell 2.4 percent, the Dow Jones Industrial Average slipped 1.3 percent and the Nasdaq composite ended 3.1 percent lower from the previous session on Friday. The US market has been hit by high volatility after a recent government report there showed that inflation remains high.

South Korean and overseas brokerages recently lowered Naver and Kakao’s target prices, forecasting lackluster third-quarter performances.

Japan-based Nomura Securities lowered Naver’s target price from the previous 340,000 won to 180,000 won, while downgrading its rating from “buy” to “hold.” Korean brokerages such as NH Investment ＆ Securities and Samsung Securities lowered the portal operator’s target price from 360,000 won to 270,000 won and 350,000 won to 280,000 won, respectively.

NH Investment ＆ Securities also lowered Kakao’s target price from the previous 110,000 won to 78,000 won.

“Naver’s third-quarter sales are projected to increase 20.6 percent on-year to 2.8 trillion won and operating profit is forecast to drop 8.9 percent to 306.4 billion won, coming below the market consensus,” Korea Investment ＆ Securities said in a recent report.

A separate report from Ebest Investment ＆ Securities on Kakao said the firm’s “third-quarter sales are projected to gain 7.2 percent on-year to 1.8 trillion won while its operating profit will increase 9.7 percent to 184.5 billion won, failing to satisfy the market consensus.”

By Jung Min-kyung (mkjung@heraldcorp.com)