Report Interpretation

Overview

HSBC compares Naver and Kakao after their 2Q26 results, focusing on the divergence in core-business profitability and AI strategy. It retains Buy ratings on both but prefers Kakao because its Talk platform and cost structure are expected to support earnings growth, whereas Naver’s expanding investment programme is likely to pressure margins before AI infrastructure revenues become more visible.

Core views

HSBC frames the comparison around the importance of core-business profitability while AI initiatives are still developing. Naver reported 2Q26 operating profit of KRW520bn, flat year-on-year and 8% below Bloomberg consensus. Its operating margin declined by 3 percentage points year-on-year to 15%, with larger-than-expected costs tied to investment in commerce and fintech. Kakao, in contrast, delivered a 13% operating margin, up 2 percentage points year-on-year. HSBC expects this difference to persist in 2H26: it forecasts Naver’s operating margin at 16%, down from 18.6% in 2H25, while Kakao’s operating profit is projected to grow 26% year-on-year and its margin to expand to 12.7%, up 1.7 percentage points year-on-year. For Naver, the report expects increased spending on seller support for fast delivery, competition in offline payment terminals with Toss, and AI services to weigh on near-term profitability. Naver’s 2Q26 revenue was KRW3,389bn, up 16% year-on-year, but operating expenses rose 20%, including a 25% year-on-year rise in marketing expense. HSBC forecasts 2026e revenue of KRW14,064bn and operating profit of KRW2,249bn, implying a 16% margin. It reduced its 2026e-28e operating-profit estimates by 7%, 5% and 4%, respectively, while lifting sales estimates by about 1%. Naver’s AI strategy is to operate B2B AI infrastructure, which HSBC considers more monetizable than consumer AI agents because demand is clearer as AI technology develops. Its capacity plan rises from 85MW currently to 375MW in 2028, 643MW in 2029 and 1,010MW in 2030. HSBC estimates annual infrastructure revenue of KRW0.5trn in 2027e, KRW2.6trn in 2028e, KRW6.1trn in 2029e, KRW11.8trn in 2030e and KRW18.0trn in 2031e. However, AI infrastructure has computing-cost and utilization risk, and HSBC does not expect the opportunity to be fully reflected until Naver secures full-capacity contracts. The report also notes that its 2028 valuation base has the highest visibility because Naver’s disclosed expansion roadmap extends to that year. Kakao’s strategy centers on the B2C AI-agent market, including GPT-in-Talk, but HSBC sees hurdles in user acquisition and profitability because Korean users favor standalone apps. Unlike Naver, Kakao does not face a major increase in AI-related costs, but monetization remains uncertain. The institution expects its core Talk business to benefit from the 4Q25 platform revamp, improved cost structure, and the disposal of non-core, low-margin assets. In 2Q26, Kakao generated revenue of KRW2,098bn, up 9% year-on-year, and operating profit of KRW277bn, up 36% year-on-year and 22% above consensus. HSBC forecasts revenue of KRW8,402bn and operating profit of KRW1,042bn for 2026e, followed by operating profit of KRW1,285bn in 2027e. HSBC’s valuation supports its preference for Kakao but keeps a Buy rating on Naver. For Naver, it uses a sum-of-the-parts approach across advertising, commerce, financial platform, Webtoon Entertainment and Enterprise. It cuts the advertising value to KRW14.8trn from KRW18.2trn, retains an 11.3x target P/E, and values commerce at KRW19.5trn using a 0.29x EV/GMV multiple on average 2026e-27e GMV of KRW66trn. Enterprise is valued at KRW9.4trn, down from KRW10.4trn, based on KRW62bn EV/MW for 290MW of 2028e capacity, a 20% discount to the KRW77.6bn peer reference. After net debt, HSBC derives fair value per share of KRW371,509 and rounds the target price to KRW370,000, down from KRW400,000. For Kakao, HSBC values the core business at KRW9.5trn using a 15.8x target P/E on 2026e NOPAT of KRW601bn, applying a 30% discount to its reference multiple because profitability from new initiatives remains less visible. Subsidiaries are valued at KRW11.6trn, including Kakao Mobility, Kakao Entertainment, Kakao Pay, KakaoBank, Kakao Games and SM Entertainment, generally after a 30% holding-company or NAV discount. After net debt, the report derives fair value per share of KRW59,737 and maintains the KRW60,000 target price. At 18.5x 2027e P/E, HSBC expects Kakao’s Talk platform to drive 20%-30% year-on-year operating-profit growth in 2026e-27e despite low market expectations for AI monetization.

Analysis framework

HSBC first compares the companies’ 2Q26 operating performance and 2H26 margin outlook, then contrasts their B2B infrastructure and B2C agent AI models. It links AI prospects to core-profitability capacity and applies segment-level sum-of-the-parts valuations using earnings multiples, GMV multiples, peer EV/MW benchmarks, stake values and stated discounts.

Methodology notes

• Valuation methodsSOTP (Sum-of-the-Parts) Valuation

  Sum-of-the-parts valuation

  HSBC values Naver’s operating segments and Kakao’s core business and subsidiaries separately, then adjusts for net debt to derive equity value and target prices.

• Valuation methodsP/E and PEG Valuation

  Target P/E multiples

  The report applies target P/E multiples to Naver’s advertising business and Kakao’s core business, with discounts reflecting sentiment and profitability-visibility considerations.

• Valuation methods

  EV/MW valuation for AI datacentre capacity

  HSBC values Naver Enterprise against datacentre power capacity, using a peer-derived EV per megawatt benchmark and a discount for Naver’s new-market position.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Naver (035420.KS)

  Covered company; B2B AI-infrastructure potential is offset by near-term core-margin pressure.

  Strengths

  Clearer AI-infrastructure monetization potential and a disclosed datacentre expansion roadmap through 2028.

  Weaknesses

  Higher commerce, fintech and AI investment is expected to reduce 2H26 operating margin.

  Comparison

  HSBC prefers Kakao because Kakao is expected to deliver stronger near-term core operating-profit growth.

  Risks

  Digital-ad share loss, slower Plus membership growth, delays to the Dunamu deal, weak AI monetization, or limited NVIDIA cooperation.

• Kakao (035720.KS)

  Covered company and HSBC’s preferred pick; Talk-platform growth and cost discipline are expected to support earnings.

  Strengths

  Talk revamp, improved cost structure, and disposals of non-core low-margin assets support margin expansion.

  Weaknesses

  Profitability from AI-agent initiatives, including GPT-in-Talk, has limited visibility.

  Comparison

  Kakao is preferred over Naver despite lower visibility on AI monetization because its core platform is expected to grow more profitably.

  Risks

  Macro deterioration affecting advertising, weaker-than-expected AI-agent monetization, or delayed new-service launches.

Key data

• Naver 2Q26 operating profitKRW520bnFlat year-on-year; 8% below Bloomberg consensus.
• Naver 2Q26 operating margin15%Down 3 percentage points year-on-year.
• Naver 2H26 operating-margin forecast16%Versus 18.6% in 2H25.
• Kakao 2Q26 operating profitKRW277bnUp 36% year-on-year; 22% above consensus.
• Kakao 2H26 operating-profit forecast+26% year-on-yearOperating margin forecast at 12.7%, up 1.7 percentage points year-on-year.
• Naver 2028e AI datacentre capacity used in valuation290MWApplied to Enterprise valuation; excludes existing capacity used for internal businesses.
• Naver target priceKRW370,000Cut from KRW400,000; implies 76.2% upside from KRW210,000.
• Kakao target priceKRW60,000Unchanged; implies 50.4% upside from KRW39,900.

Impact & implications

HSBC argues that Naver’s AI-factory potential is meaningful but will need contracted capacity and resilient core margins to be reflected more fully. It sees Kakao’s improving Talk economics as the more immediate earnings driver, while its AI-agent monetization remains a longer-term uncertainty.

Risks

• For Naver, HSBC cites potential digital-ad market-share loss from search-AI competition, weaker Plus membership growth, delays to the Dunamu deal, weak AI-service monetization, and no meaningful NVIDIA cooperation.
• For Kakao, HSBC cites macro weakness affecting advertising, disappointing AI-agent monetization, and delays in new-service launches.

What to watch

• Naver’s 2H26 operating-margin trend as commerce, fintech and AI spending rises.
• Announcements of full-capacity contracts and progress on Naver’s NVIDIA-linked AI infrastructure expansion.
• Kakao Talk platform growth and the pace of margin improvement following the revamp and non-core asset disposals.
• Evidence that Kakao can monetize AI-agent services and deliver new services on schedule.