Despite Rising Labor Costs, Kakao Posts Strong Performance, Leaps Toward Global KakaoTalk Kingdom (Comprehensive)

[Asia Economy Reporter Kang Nahum] Despite negative conditions such as reduced pandemic benefits and rising labor costs, Kakao managed to record operating profits at last year's level, showing resilience. CEO Namgoong Hoon declared that Kakao would globalize by expanding its core business, ‘KakaoTalk,’ from a network of acquaintances to a non-acquaintance domain.

◆ Balanced Growth Across All Sectors = Kakao announced on the 4th that it recorded consolidated sales of 1.6517 trillion KRW and operating profit of 158.7 billion KRW in the first quarter of this year. These figures represent increases of 31% and 1%, respectively, compared to the same period last year. However, they slightly missed market expectations from securities firms. Platform segment sales amounted to 886 billion KRW, up 27% year-on-year. Among these, TalkBiz sales recorded a steady growth of 23% year-on-year, reaching 461 billion KRW.

Ad-based revenues such as BizBoard and KakaoTalk Channel increased by 32% year-on-year, while transaction-based revenues from Gift, Talk Store, etc., remained at levels similar to the previous quarter. PortalBiz sales decreased by 3% year-on-year to 114 billion KRW. Other platform segment sales grew 52% year-on-year to 311 billion KRW, driven by stable revenue expansion from Kakao Mobility and Kakao Pay.

Kakao's content segment sales rose 36% year-on-year to 765.7 billion KRW. In particular, Story sales grew 38% year-on-year to 240.5 billion KRW. This was driven by increased platform transaction volume led by the KakaoPage original drama ‘Sanaematsun’ in Korea and North America, as well as record-high quarterly sales due to the expansion of new lineups on Japan’s Piccoma.

Music sales increased 11% year-on-year to 204.4 billion KRW, and media sales rose 3% to 75 billion KRW. Game sales reached 245.8 billion KRW, an 89% increase compared to the same period last year. The effect of the mobile game ‘Odin’ launching in Taiwan is expected to be reflected in second-quarter sales this year.

Operating expenses in the first quarter of 2022 were 1.493 trillion KRW. Although this was an 11% decrease from the previous quarter, it increased 36% year-on-year. In particular, labor costs rose by 41 billion KRW year-on-year to 143.9 billion KRW, a 40% increase.

◆ Namgoong Hoon: "Fundamental Change Needed for KakaoTalk" = CEO Namgoong predicted a fundamental change in Kakao’s core service, KakaoTalk, on the same day. During the earnings conference call, he said, "I believe a fundamental change is necessary to make KakaoTalk a service that users can visit and enjoy more lightly," adding, "We plan to design and gradually apply service elements that allow users to share light interactions in the profile, friends, and chat areas."

He elaborated, "KakaoTalk currently connects all 50 million Koreans with a strong support base, but for greater expansion, it needs to expand in a different way, that is, into the business domain."

Namgoong also stated, "Currently, text-based communication will evolve by increasing the proportion of images and videos, allowing KakaoTalk to overcome its other limitation of being text-based and leap into a new service. The Korean smartphone population based on Hangul is 50 million, which is only 1% of the global smartphone population of 5 billion. Kakao aims to expand from this 1% to the remaining 99% worldwide."

He expressed confidence in achieving his goal of an early ‘stock price of 150,000 KRW.’ He said, "If the KakaoTalk service revamp and global expansion are realized, I believe the stock price can recover to 150,000 KRW, and I will do my best to achieve this as soon as possible."

Competition with Naver in sales performance is also drawing attention. The sales gap between Naver and Kakao in the first quarter of last year was 241.1 billion KRW, but it narrowed to 193.5 billion KRW in the first quarter of this year. Notably, in the third quarter of last year, Kakao surpassed Naver in quarterly sales for the first time since its founding. Recently, securities firms have begun issuing reports suggesting that Kakao could surpass Naver in annual sales.

This content was produced with the assistance of AI translation services.