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Daum and Kakao take aim at Naver

No. 1 portal is still bigger, and overseas it has much more success

May 27,2014
As the nation’s No. 1 mobile messenger company Kakao and its second-largest portal operator Daum Communications plan to merge, it remains to be seen whether Naver’s stranglehold on the domestic portal market will be challenged.

The merger of Daum and Kakao is aimed directly at Naver. The two companies will have similar business structures based on Internet portals and mobile platforms.

The newly merged Daum Kakao will still be much smaller than Naver in terms of market capitalization with 3.4 trillion won ($3.32 billion), compared to Naver’s more than 25 trillion won market cap.

But the merger could bring about an upheaval in the domestic market by creating synergy among Daum’s Internet portal search function, display ads and game businesses and Kakao’s mobile services, local analysts say.

“Daum can gain growth momentum through Kakao, while Kakao will be able to utilize Daum’s resources in its new businesses and overseas business expansion,” said Hwang Seung-taek, an analyst at Hana Daewoo Investment Securities.

“The synergy between the two companies will first be made in ads, game and content sectors.”

Ahn Jae-min, a market analyst at Kiwoom Securities, also forecast positive synergy saying Daum Kakao will be able to take a significant slice of what Naver has had to itself in the domestic portal market for the past 10 years.

Naver, which competes directly with Daum, saw its shares fall 4 percent to 745,000 won at the close in Seoul, its steepest loss since April 7, as concerns rise that it could lose its competitiveness even if it maintains the No. 1 position in the market.

Naver’s market capitalization shrank to 24.4584 trillion won yesterday, and it was pushed out of the seventh-largest market cap company slot on the Kospi market by Kia. Its market cap rose to 24.4839 trillion won yesterday. Naver was the eighth-largest market cap company.

WeMade Entertainment, an online gamemaker that owns 5.6 percent of Kakao’s preferred shares, rose by the daily limit of 15 percent.

While Kakao CEO Lee Seok-woo told reporters the company will focus on growth rather than attacking Naver’s cornering of the portal market, Daum Communications CEO Choi Se-hoon expressed confidence that Daum Kakao will have strong competitiveness as an IT giant.

“The best synergy could be created when Kakao’s strong mobile platform competitiveness and Daum’s excellent content, service business know-how and special technologies are combined,” said Choi.

“The merged corporation will grow as a platform business that encompasses all sectors of information technology, including mobile, from communications to information and lifestyle. In the rapidly changing mobile service market, Daum Kakao will lead the post-mobile age.”

However, some industry analysts predicted the merged Daum and Kakao will not easily take on Naver’s stronghold, which accounts for 70 percent of the combined market share of the local portal industry.

“Naver’s share price dropped temporarily with the breaking of such big news,” said Lee Jong-won, an analyst at IM Investment and Securities. “However, it won’t likely affect Naver’s profitability or become a huge threat.”

A researcher at Hi Investment and Securities said Naver’s business plan will not change significantly and the merger will not affect Naver’s mobile messenger business Line’s IPO plan.

Daum Kakao’s challenge to Naver also depends on their overseas performances. While KakaoTalk is the No. 1 mobile messenger in the domestic social networking market, the number of its subscribers in the global market is only 130 million, less than half of the 420 million users of Naver’s Line.

BY KIM JUNG-YOON, CHO MIN-GEUN, SOHN HAE-YONG [kjy@joongang.co.kr]






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