[Edaily Reporter Shin Ha-yeon ] Meritz Securities stated that SOOP(067160)posted a “earnings shock” in the second quarter, with results falling significantly short of market expectations, and assessed that a recovery in the stock price would be difficult without a fundamental turnaround in its business structure. The firm lowered its target price from 76,000 won to 51,000 won and maintained its “Hold” investment rating.

Lee Hyo-jin, an analyst at Meritz Securities, stated, “SOOP’s second-quarter consolidated revenue and operating profit fell significantly short of consensus estimates, at 103.8 billion won—down 11.2% year-over-year—and 12.6 billion won—down 57.9% year-over-year,” adding, “Advertising costs for content such as Valorant had an impact of 1.5 billion won, and one-time expenses, including those related to a tax audit, also played a role.” He added, “The company stated that it cannot disclose the specific amount of these costs.”

The analyst viewed the poor performance as more than just a matter of one-time costs. He noted, “In a situation where the core business is underperforming, dividends act as a floor for the stock price,” but added, “If business profits fall short of expectations while the payout ratio remains fixed, this loses its ability to support the bottom.”

However, the company is preparing three initiatives to improve its business in the second half of the year. It plans to establish a policy to attract new streamers and disclose specific details during the third quarter; improve the user experience (UI/UX) to address issues such as language barriers; and launch a new brand in collaboration with its advertising subsidiary.

However, Meritz Securities assessed that these changes alone would not be sufficient to restore investor confidence. The analyst noted, “With the second-quarter tax audit costs eliminated, a quarter-over-quarter rebound in third-quarter profits is possible,” but added, “There is no clear breakthrough in sight due to the negative leverage arising from a business structure fundamentally confined to the domestic market.” The analyst continued, “The performance of the global platform, which the market had high hopes for, remains lackluster, and the domestic business is deteriorating faster than expected,” and maintained the existing “Hold” rating, noting, “A clear turning point in the business is needed rather than a ‘bottom approach’ to pricing.”