South Korea's tech giants, Naver and Kakao, have shown starkly different performances in their Q3 earnings, highlighting the widening gap between the two companies. While Naver has achieved record-high earnings, Kakao has faced a slowdown in growth and legal troubles, leading investors to distance themselves from the company.

Kakao Faces Challenges

Kakao reported a 4% decline in revenue to 1.92 trillion won and a 5% increase in operating profit to 1.305 trillion won in the third quarter. Although this performance exceeded market expectations, analysts noted that the company focused more on cost-cutting to protect profitability rather than achieving significant growth.

Kakao's future prospects are clouded by uncertainties, including legal issues involving its founder, Kim Bum-soo, and allegations of revenue padding. These challenges have prompted investors to avoid Kakao. The company's stock price has plummeted by 35.54% since the beginning of the year, hitting a 52-week low of 32,900 won on September 9. Other Kakao-affiliated companies, such as KakaoPay, KakaoGames, and KakaoBank, have also experienced significant declines, reflecting the group's overall crisis.

Naver Sets New Records

In contrast, Naver has achieved its highest-ever quarterly earnings. The company reported a 11.1% increase in revenue to 2.7156 trillion won and a 38.2% increase in operating profit to 5,253 billion won in the third quarter. Operating margin also improved to 19.3%, marking a six-quarter consecutive increase.

Naver's stock price has rebounded since hitting a 52-week low in August. Although it closed at 174,600 won on November 8, down 2.84% from the previous trading day, it reached a high of 182,600 won earlier in the day, marking its highest level since May 23.

Diverging Paths

The contrasting performances of Naver and Kakao have led to diverging stock price trends. Naver's recovery is attributed to the improvement in overall revenue growth, which had previously been a concern for investors.

Naver is now on track to surpass 10 trillion won in annual revenue. With cumulative revenue of 7.8522 trillion won so far this year, the company is expected to achieve this milestone based on market consensus.

Analyst Comments

Oh Dong-hwan, a researcher at Samsung Securities, commented, "The recovery in overall revenue growth, which had been a valuation discount factor, is driving the company's stock price upwards."