Mirae Asset Securities has raised its target price for Kakao Games from 9,000 won to 15,000 won, reflecting the company's potential return to profitability next year due to an expansion of new game releases and improvements in cost structure. The investment recommendation remains a 'buy.' Analysts expect Kakao Games to end its ongoing losses this year and begin a significant turnaround in performance starting next year.
In a report on October 22, analyst Lim Hee-seok stated, "Kakao Games is expected to transition from an annual operating loss of 100 billion won this year to an operating profit of 145 billion won next year. The simultaneous expansion of new game supply and cost structure improvements will lead to a significant operational leverage effect starting next year."
However, Kakao Games is projected to continue facing losses in the third quarter of this year. Mirae Asset Securities forecasts third-quarter revenues to decline by 30.4% year-on-year to 89 billion won, with an operating loss of 28 billion won. For the entire year, the company estimates revenues of 388 billion won and an operating loss of 100 billion won. Nevertheless, it anticipates revenues will rise to 833 billion won in 2027, marking a 114.8% increase, with an operating profit of 145 billion won, indicating a return to profitability.
The key to this performance rebound lies in new game releases. Following the successful launch of 'Cracking' on October 18, Kakao Games plans to introduce 'ArcheAge Chronicle' later this year. Next year, four new titles, including 'Guardians Order,' are scheduled for release. Mirae Asset Securities positively assessed the easing concerns over delays in new game launches.
Improvements in cost structure are also underway. Kakao Games is restructuring its business to focus on gaming by streamlining non-core operations and enhancing organizational efficiency, thereby reducing personnel and fixed cost burdens. The company is also working to increase the efficiency of its existing development teams while concentrating resources on core projects.
Lim noted, "The increase in new game revenues and the reduction in fixed costs will align, leading to a significant operational leverage effect starting in 2027. The improvement in business structure is expected to be a key driver of the performance turnaround."
* This article has been translated by AI.
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