Kakao Plans to Spin Off KakaoX and KakaoAI, but Re-rating Still Requires Operational and Capital Allocation Delivery

Overview

The report assesses Kakao’s plan to proportionally split into KakaoX and KakaoAI and its valuation implications. Goldman Sachs recognizes that the spin-off should improve strategic focus and capital ring-fencing, but believes it will not automatically unlock value; sustained market re-rating requires verifiable progress in AI commercialization, realization of KakaoX’s net asset value and shareholder return measures.

Core views

Kakao announced a plan to split the company in proportion to existing shareholders’ ownership: KakaoX will serve as a “future value investment company,” holding fintech, content, mobility and investment assets, while KakaoAI will encompass KakaoTalk, maps, advertising, e-commerce and AI businesses. Based on standalone net assets of approximately W5.1trn and W2.9trn, respectively, the split ratios would be approximately 63.5% and 36.5%. The planned effective date of the spin-off is January 1, 2027, while KakaoX’s relisting and KakaoAI’s listing are both scheduled for January 27, 2027. Goldman Sachs believes a proportional spin-off could sharpen the strategic focus of both entities and create a capital allocation firewall between the core platform and affiliates, but the transaction itself will not directly create operating value. Both proposed spin-off entities have set ambitious long-term operating targets. KakaoX plans to increase revenue from W5.6trn in 2025 to more than W10trn in 2030, implying a CAGR of approximately 13%, and achieve a 13% ROE. KakaoAI plans to increase revenue from W2.7trn in 2025 to more than W6trn in 2030, while achieving EBITDA of more than W2trn, an operating margin exceeding 30% and an ROE exceeding 25%. New AI business revenue is planned to reach a double-digit share of KakaoAI’s revenue in 2028 and exceed W1trn in 2030; however, management acknowledges that agentic advertising and e-commerce currently contribute close to zero revenue and may not begin commercialization until early 2027. Regarding shareholder returns, KakaoX plans to return 30% of after-tax subsidiary dividends and up to 30% of investment gains after deducting taxes and the cost of capital. The company also plans to conduct W300bn of share repurchases and cancellation during the first three years following the KakaoX spin-off, funded by proceeds from the disposal of Dunamu. These arrangements provide a framework for reducing undisciplined capital allocation and improving shareholder returns, but Goldman Sachs believes the market still needs to see whether they will be fully executed. The market’s initial reaction indicates that investors do not yet view the spin-off as an immediate catalyst for value realization. Kakao shares closed down 7.5% on August 21 after falling by approximately 13% intraday. Goldman Sachs’ existing sum-of-the-parts valuation already separates the core businesses from non-core holdings and applies a 30% holding company discount to non-core net asset value. Therefore, merely changing the company’s legal structure is insufficient to alter its valuation; subsequent re-rating is more likely to depend on whether the discount verifiably narrows and whether post-spin-off capital allocation improves. KakaoX may continue to trade at a holding company discount, or even at a wider discount, because several major subsidiaries are already separately listed. Management emphasizes the unlisted Kakao Entertainment and Kakao Mobility, its ability to incubate future businesses and the reduced likelihood of further duplicate listings, but Goldman Sachs believes these factors have yet to establish a clear path to realizing net asset value. Although the proposed Kakao Mobility ADR would involve only shares held by TPG, it could still reinforce investor concerns that affiliate value is being carved out through separate listings unless the company discloses specific protections for parent-company shareholders. The key controversy surrounding KakaoAI is the vast gap between its growth targets and current revenue base. Management targets more than W1trn in AI revenue by 2030, significantly above Goldman Sachs’ current estimate of W190bn in AI service revenue. This would require agentic advertising and e-commerce, which currently generate close to zero revenue, to scale rapidly beginning in 2027. Management believes AI users have higher engagement and that KakaoTalk can support transactions through contextual understanding, identity authentication and payment capabilities. Goldman Sachs notes, however, that longer usage time does not prove monetizability; before giving full credit to management’s targets, it needs to see actual evidence of user adoption, conversion rates, repeat usage, transaction volumes and partner economics. The report also cautions that the liquidity disclosed by the two entities is not equivalent to funds freely deployable by the parent company. Of KakaoX’s stated W6.4trn in investment resources, W4.1trn is held by subsidiaries; of KakaoAI’s stated W2.3trn in cash, W1.85trn comprises e-commerce customer deposits and corresponds to payment obligations. Therefore, these headline funding figures should not all be viewed as investment capacity available at the parent-company level. Overall, Goldman Sachs believes the core question after the spin-off is whether Kakao’s valuation discount will genuinely decline or merely be redistributed between the two entities. Sustained re-rating requires detailed pro forma financial data, quantifiable AI monetization milestones, a credible framework for realizing KakaoX’s net asset value, explicit shareholder protections related to the Kakao Mobility ADR and execution of the W300bn share repurchase and cancellation plan. Goldman Sachs rates Kakao Buy and assigns a 12-month target price of W51,000. Its valuation estimates the core business, including AI services, at W15.5trn using a 10-year DCF with a WACC of 10.6% and a terminal growth rate of 2%; it then adds the net asset value of key subsidiaries and affiliates, applying a 30% holding company discount, to derive W6.9trn in non-core value. The two components total approximately W22.5trn, corresponding to W51,000 per share. Downside risks explicitly identified in the report include weaker-than-expected KakaoTalk commercialization growth, advertising demand, Biz Message expansion or operating leverage following the redesign, which could delay the platform’s earnings recovery; slower progress in asset sales, loss reduction at subsidiaries and the scaling back of non-core investments, affecting earnings visibility and quality; and sluggish development of the agentic AI ecosystem, partner participation, user adoption or transaction conversion. If Kakao fails to establish compelling AI-native use cases or monetize conversational traffic through search advertising and CPS models, the long-term AI optionality embedded in the valuation may not materialize.

Analysis framework

Goldman Sachs first breaks down the proposed transaction’s legal structure, asset allocation, timeline and operating targets, then compares these arrangements with the market’s initial reaction and its existing valuation framework. The analysis subsequently examines KakaoX’s holding company discount and path to realizing net asset value, KakaoAI’s feasibility of converting user engagement into actual revenue and the degree to which disclosed funds are deployable. Finally, it derives the target price through a sum-of-the-parts valuation combining DCF and non-core net asset value and lists the validation conditions required for re-rating.

Methodology notes

• Valuation MethodSOTP Valuation

  Valuation of Core Businesses and Non-core Holdings by Segment

  The report separately calculates the value of the core businesses and the stakes in key subsidiaries and affiliates, then adds the two components together. This method enables Goldman Sachs to assess whether the corporate spin-off creates new value not already reflected in the existing valuation.

• Valuation MethodDCF

  10-year Discounted Cash Flow

  Goldman Sachs values the core business, including AI services, using a 10-year DCF with a weighted average cost of capital of 10.6% and a terminal growth rate of 2%, yielding a core business value of W15.5trn.

• Valuation MethodNAV Valuation

  Non-core Net Asset Value and Holding Company Discount

  The report aggregates the net asset value of key subsidiaries and affiliates and applies a 30% holding company discount, yielding W6.9trn in non-core value; post-spin-off re-rating depends on whether this discount can actually narrow.

Asset mapping & comparison

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

• Kakao Corp. (035720.KS)

  The existing listed entity plans to proportionally split into KakaoX and KakaoAI; Goldman Sachs believes the spin-off should improve strategic focus, but value realization depends on narrowing the discount and delivering operational results.

  Strengths

  It has KakaoTalk’s user and transaction base, identity authentication and payment capabilities, as well as fintech, content and mobility assets.

  Weaknesses

  AI commercialization remains at an early stage, non-core assets are subject to a holding company discount and several headline liquidity figures are not freely deployable by the parent company.

  Comparison

  Goldman Sachs’ existing sum-of-the-parts valuation already separates the core businesses from non-core holdings, so the spin-off alone does not create operating value beyond the existing model.

  Risks

  A slower-than-expected platform earnings recovery, portfolio restructuring or agentic AI commercialization could weaken earnings visibility and the long-term optionality embedded in the valuation.

• KakaoX

  It is expected to hold fintech, content, mobility and investment assets and assume responsibility for incubating future businesses and allocating capital.

  Strengths

  It targets revenue exceeding W10trn and an ROE of 13% by 2030 and has committed to returning a portion of dividends and investment gains as well as repurchasing and cancelling W300bn of shares.

  Weaknesses

  Several important subsidiaries are already separately listed, the path to realizing net asset value remains unclear and most investment resources are held by subsidiaries.

  Comparison

  It may continue to trade at a holding company discount or even face a wider discount due to concerns over duplicate listings.

  Risks

  Delayed asset disposals, weaker-than-expected loss reduction at subsidiaries, reinvestment in non-core businesses or a Mobility ADR without protections for parent-company shareholders.

• KakaoAI

  It is expected to integrate KakaoTalk, maps, advertising, e-commerce and AI, becoming a pure-play platform and AI company.

  Strengths

  KakaoTalk has contextual understanding, identity authentication and payment capabilities, and management has observed higher engagement among AI users.

  Weaknesses

  Agentic advertising and e-commerce currently contribute close to zero revenue, while the W1trn AI revenue target for 2030 is far above Goldman Sachs’ current estimate of W190bn.

  Comparison

  There is a significant gap between management’s growth targets and Goldman Sachs’ current forecasts, which needs to be bridged by evidence of user adoption, conversion, repeat purchases and transaction volumes.

  Risks

  Slow ecosystem development, partner participation, user adoption or transaction conversion could prevent the realization of AI-native use cases and monetization through CPS or search advertising.

Key data

• KakaoX/KakaoAI Split RatiosApproximately 63.5%/approximately 36.5%Based on their respective standalone net assets of approximately W5.1trn/approximately W2.9trn
• Spin-off and Listing DatesJanuary 1, 2027; January 27, 2027The former is the planned spin-off date, and the latter is the planned date for KakaoX’s relisting and KakaoAI’s listing
• KakaoX Revenue TargetMore than W10trn in 2030Up from W5.6trn in 2025, implying a CAGR of approximately 13%
• KakaoX ROE Target13%The company’s disclosed operating target for 2030
• KakaoAI Revenue TargetMore than W6trn in 2030Up from W2.7trn in 2025
• KakaoAI Profitability TargetsEBITDA exceeding W2trn; operating margin exceeding 30%; ROE exceeding 25%The company’s disclosed targets for 2030
• New AI Revenue TargetA double-digit share of KakaoAI revenue in 2028; more than W1trn in 2030Agentic advertising and e-commerce currently contribute close to zero revenue, with commercialization potentially beginning in early 2027
• Goldman Sachs AI Service Revenue EstimateW190bnSignificantly below management’s target of more than W1trn in 2030
• KakaoX Shareholder Return Plan30% of after-tax subsidiary dividends; up to 30% of investment gainsThe return ratio for investment gains is calculated after deducting taxes and the cost of capital
• Share Repurchases and CancellationW300bnPlanned for the first three years following the KakaoX spin-off and funded by proceeds from the disposal of Dunamu
• Share Price Reaction on August 21Closed down 7.5% after falling by approximately 13% intradayIndicates that the market did not view the spin-off as an immediate catalyst for value realization
• KakaoX Investment ResourcesW6.4trn, of which W4.1trn is held by subsidiariesNot all of it constitutes investment capacity freely deployable by the parent company
• KakaoAI Cash BalanceW2.3trn, of which W1.85trn comprises e-commerce customer depositsCustomer deposits correspond to payment obligations and cannot be fully regarded as deployable cash
• Core Business ValuationW15.5trn10-year DCF with a WACC of 10.6% and a terminal growth rate of 2%
• Non-core Asset ValueW6.9trnDerived after applying a 30% holding company discount to the net asset value of key subsidiaries and affiliates
• Total Valuation and Target PriceW22.5trn; W51,000 per shareCorresponding to Goldman Sachs’ 12-month target price and Buy rating

Impact & implications

The report believes the spin-off could sharpen business focus and ring-fence capital allocation between the core platform and affiliates, but it will not automatically increase operating value. If KakaoAI cannot demonstrate the conversion and transaction economics of agentic advertising and e-commerce, or KakaoX cannot establish credible net asset value realization and shareholder protection mechanisms, the existing valuation discount may merely be redistributed rather than eliminated. Conversely, clear financial disclosure, AI monetization and execution of the share repurchases are necessary conditions for sustained re-rating.

Risks

• Weaker-than-expected core platform recovery: Insufficient Talk Biz growth, advertising demand, Biz Message expansion or operating leverage following the KakaoTalk redesign could delay the earnings recovery.
• Slower portfolio restructuring execution: Delayed asset sales, weaker-than-expected loss reduction at subsidiaries or reinvestment in non-core businesses could reduce consolidated earnings visibility and delay improvements in earnings quality.
• Agentic AI commercialization takes significantly longer than expected: Insufficient ecosystem development, partner participation, user adoption or transaction conversion could prevent the long-term AI optionality embedded in the valuation from being realized.

What to watch

• Monitor detailed pro forma financial data for the spin-off transaction and the specific financial boundaries of the two entities.
• Track monetization milestones such as AI user adoption, conversion rates, repeat usage, transaction volumes and partner economics.
• Watch whether KakaoX presents a credible and executable framework for realizing net asset value.
• Watch whether the Kakao Mobility ADR discloses specific protections for Kakao parent-company shareholders.
• Track the actual execution of the W300bn share repurchase and cancellation plan over the three years following the spin-off.
• Monitor subsequent details of the proposed transactions, including the spin-off, relisting and listing of the new entity.