Dow Jones Newswires: Kakao shares slump in South Korea after data-center fire disrupts services

United States

Kakao Corp. shares 035720, -5.93% slumped early Monday after a fire at one of its data centers over the weekend disrupted its popular messaging app and other fintech services.

Shares in the South Korean mobile internet giant fell as much as 9.5% to 46,500 won ($ 32.25) in morning trade and were last 5.5% lower at KRW48,600 around midday. The benchmark Kospi index was 0.1% higher.

Kakao’s retreat reflects investors’ concerns about damage to the company’s reputation as well as earnings setbacks that the company could suffer from the fire, according to analysts.

The Saturday blaze at a data center south of Seoul crippled various Kakao services, including the mobile messaging app KakaoTalk which is used by well over 80% of South Koreans, over most of the weekend until late Sunday.

“In fact, the entire nation has experienced the discomfort, and Kakao’s reputation as a premium brand for providing various platform services has been tarnished,” Seoul-based Eugene Investment & Securities analyst Jung Eui-hoon said in a note Monday.

Kakao will also need to prepare for additional costs to cover damages caused by its disrupted services, Jung said, noting that its taxi ride-hailing, paid-content and online-game services had been affected. Its fintech affiliates KakaoBank Corp. and Kakaopay Corp. were also trading more than 4% lower Monday.

Kakao said in a regulatory filing Monday that it and SK C&C, which accommodates the data center, were in talks to discuss damages, and expect the fire to have a “limited” impact on revenue.

Samsung Securities analyst D.H. Oh estimated Monday that the weekend fire and business disruption could cut Kakao’s revenue by 1% to 2% for the fourth quarter.

Eugene Investment & Securities Monday lowered its target for Kakao’s shares by 39% to KRW65,000, citing the platform company’s loss of growth momentum on weaker corporate spending on online advertising and a lack of new growth engines.