Kakao's Q2 Operating Profit Grows 5% YoY to 171 Billion KRW... Operating Margin Declines (Comprehensive)

[Asia Economy Reporter Seungjin Lee] Kakao recorded solid growth in the second quarter with both sales and operating profit increasing year-on-year. However, due to the increased burden of labor costs, the operating profit margin remained in the single digits for the second consecutive quarter.

Kakao announced on the 4th that its sales in the second quarter of this year reached 1.8223 trillion KRW, up 35% compared to the same period last year. Operating profit was 171 billion KRW, up 5% year-on-year, while net profit was 101.2 billion KRW, down 68%.

Platform Advertising and Games Prove to Be Key Drivers

Kakao's platform segment sales in the second quarter amounted to 930.7 billion KRW, a 22% increase compared to the same period last year. Talk Biz sales continued steady growth, rising 16% year-on-year to 453.2 billion KRW. Among these, Talk Biz advertising revenues such as Biz Board and KakaoTalk Channel grew 28% year-on-year despite the economic downturn. Talk Biz transaction revenues, including Gift and Talk Store, increased by 2% year-on-year.

Portal Biz sales decreased 10% quarter-on-quarter and 18% year-on-year to 102.4 billion KRW. Other platform segment sales rose 52% year-on-year to 375.1 billion KRW, driven by recovery in mobility demand and stable revenue growth from Kakao Pay.

Kakao's content segment sales increased 51% year-on-year to 891.7 billion KRW. Story sales declined 5% quarter-on-quarter due to the impact of the weak Japanese yen but grew 22% year-on-year to 227.6 billion KRW. Music sales rose 11% year-on-year to 209.3 billion KRW, and media sales increased 35% year-on-year to 118 billion KRW.

The content segment was particularly boosted by games. Game sales reached 336.8 billion KRW, a 162% increase year-on-year. This reflects the impact of mobile game "Odin" sales in Taiwan and the new release effect of "Uma Musume: Pretty Derby." Kakao Games also recorded its highest-ever operating profit in the second quarter.

Operating Profit Margin Still in Single Digits... Declined from Q1

Kakao's operating expenses in the second quarter were 1.6513 trillion KRW, up 11% quarter-on-quarter and 39% year-on-year. This was influenced by marketing investments related to the expansion of global content business.

The operating profit margin failed to exceed double digits again in the second quarter. Kakao's operating profit margin was 9.4%, down 0.2 percentage points from the first quarter. Previously, Kakao had maintained an operating profit margin above 10% from Q1 2020 through Q2 last year, but it dropped to 9.7% in Q3 and 6.0% in Q4 last year, and remained at 9.4% in Q2 this year.

This contrasts with leading domestic and international IT platform companies, which show operating profit margins of 15-25%, and is attributed to the burden of labor costs. Since early last year, the IT industry has struggled with a shortage of developers and has competitively offered salary increases. In fact, Kakao's total annual salary last year was 517.7 billion KRW, a significant 77% increase from the previous year.

Meanwhile, Kakao plans to secure new growth engines by promoting strong integration between KakaoTalk's evolution and businesses such as advertising and commerce amid ongoing challenging management conditions due to macroeconomic uncertainties and global economic slowdown. Kakao intends to redefine each tab of KakaoTalk and add non-purposeful and social interaction elements to the Profile and Friends tabs. It will also expand services and explore business opportunities through improvements in entry points and feature upgrades for open chats based on interests among non-acquaintances.

A Kakao representative stated, "We plan to actively pursue ESG (Environmental, Social, and Governance) management, including strengthening environment, human rights management, and technology ethics, aiming for sustainable growth together with society."

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