Naver CEO Choi Soo-yeon, left, and Kakao CEO Namkoong Whon / Courtesy of each company

By Park Jae-hyuk

The stock prices of Naver and Kakao are expected to remain in the doldrums for the foreseeable future, due to their declining profitability as a result of a series of sharp wage hikes, according to securities market analysts, Sunday.

Earlier this month, Naver reached a tentative agreement with its unionized workers on its plan to spend 10 percent more on salaries this year and to allow each employee to use up to 300,000 won ($244) of the company's money every month to pay their mobile phone bills, buy books and park outside of the company.

The management also promised to provide financial support for the company's in-house club activities.

Naver's latest plan for a double-digit salary hike came after it raised its payroll by 7 percent in 2021 and by 5 percent in 2020 to prevent its software developers from moving to rival companies.

Once its union finishes voting on Monday, the tech firm will determine its 2022 wage. But some of its employees are said to still be demanding further wage increases this year, according to a survey posted on Blind, an anonymous chat app for employees.

In addition, Naver decided to introduce a so-called "shut down" policy next month, as a follow-up measure against the Ministry of Employment and Labor's special inspection last year in the wake of the death of a worker who killed himself last May following workplace bullying.

The new policy will start banning employees from accessing the company's computer system four hours before their maximum monthly statutory working hours. But there are concerns that the measure could weaken Naver's R&D activities.

Naver is also reportedly distressed by the fact that most of its employees remain reluctant to return to their offices, despite the construction of a new headquarters building that cost 482.9 billion won.

Samsung Securities analyst Oh Dong-hwan expected the increasing costs will weigh on Naver's profitability, delaying the rebound of its stock price that fell below 320,000 won recently from a 52-week high of 465,000 won last July.

"Because of the soaring labor costs, the year-on-year rise in its annual operating profit will not surpass 8.2 percent," he said.

Kakao shares also face a gloomy outlook after the company decided in February to spend 15 percent more this year on paying salaries, despite an earnings shock during the fourth quarter of last year.

The decision was made as part of efforts to assuage Kakao's employees, who were disappointed by Kakao Pay's executives who exercised their stock options only a month after the fintech firm's initial public offering last November.

Kakao also intends to spend 6 percent more next year on salaries.

In 2021, after it was embroiled in a controversy over its performance evaluation system based on peer reviews, Kakao decided to lend up to 150 million won to each employee for their house purchases, pay welfare points worth 3.6 million won to each employee annually and cover the dental insurance of its employees and their families.

"Kakao's first-quarter labor costs are expected to display a 61 percent rise year-on-year, and because of its additional hiring and wage increase this year, its annual labor cost is expected to rise 46 percent year-on-year, weighing on its operating profit," the Samsung Securities analyst said, lowering Kakao stock's price target to 140,000 won from 150,000 won.

DB Financial Investment analyst Hwang Hyun-joon also said the high labor costs had weakened Kakao's profitability during the first quarter.

Amid the skeptical outlook, Kakao's stock price fell below 100,000 won from a 52-week high of 173,000 won last June, despite CEO Namkoong Whon's promise to receive the minimum wage until its stock price bounces back to 150,000 won.