J.P. Morgan: Kakao Pay’s brokerage business plunges in the third quarter; target price cut to 23 thousand won

Why did third-quarter results fall short of expectations?

Kakao Pay’s third-quarter revenue was 302 billion won, up 27% year over year and down 10% quarter over quarter, respectively 6% and 1% below JPMorgan’s forecast and market consensus.
Operating profit was 32 billion won. Despite rising 105% year over year, it fell 45% quarter over quarter, coming in 15% and 13% below the bank’s forecast and market consensus, respectively. Marketing expenses rose 55% year over year and 38% quarter over quarter during the same period.
The main drag came from Kakao Pay Securities’ mobile trading business (MTS): operating profit fell 60% quarter over quarter to 16 billion won. A sharp pullback in domestic Korean stock trading volumes, alongside an adverse foreign-exchange impact on overseas trading, interrupted the earnings growth that had continued for several quarters.

Third-quarter digital finance revenue fell 24% quarter over quarter to 133 billion won, with Kakao Pay Securities’ revenue down 39% quarter over quarter as the main drag.
Insurance revenue rose 93% year over year during the same period, while digital payments revenue growth accelerated to 19% year over year, benefiting from growth in payment volumes both within the group and in external markets. JPMorgan believes the scale of these two businesses remains insufficient to support overall earnings through a downturn in securities trading.

JPMorgan is cautious about the securities business in the fourth quarter: client deposits in the domestic Korean stock market fell further from 114 trillion won in the third quarter to 90 trillion won in October. The bank cut its operating profit forecasts for the securities trading business for 2027 and 2028 by 43% and 40%, respectively, to 73 billion and 85 billion won.
At the group level, the bank lowered its 2027 revenue forecast from 1.435 trillion won to 1.363 trillion won, and its operating profit forecast from 196 billion to 169 billion won. Its net profit forecasts for 2027 and 2028 were cut by 15% and 8%, respectively.
After the cuts, the bank’s 2027 operating profit forecast is still around 6% to 7% above the two Bloomberg market consensus measures, while its net profit forecast is also higher by 18% and 21%, respectively.

JPMorgan cut its target price for December 2027 from 35 thousand won to 23 thousand won and maintained its Underweight rating. The new target price implies a 20.6x forecast price-to-earnings ratio for 2027, a 10% discount to global peers outside Korea.
The bank believes greater volatility in securities trading earnings, along with limited progress on stablecoins, platform execution and Kakao Group’s AI strategy, could continue to weigh on valuation. As of the cutoff used in the report, the share price was down 37% year to date, while the Korea Composite Stock Price Index was up 31% over the same period.
The bank’s listed upside risks include better-than-expected progress in new businesses and users converting more quickly into buyers or users of financial products, driving growth in the financial products platform.