Kakao Reports Q2 Operating Profit of 171 Billion Won... Introduces Ads in Open Chat (Comprehensive Report 2)

[Asia Economy Reporter Seungjin Lee] Kakao recorded solid growth in the second quarter with both sales and operating profit increasing year-on-year. Starting from the fourth quarter, the company plans to maximize revenue by introducing an advertising model to KakaoTalk Open Chat and announced plans to launch a separate app called ‘Open Link’ in the future.

Kakao announced on the 4th that its sales in the second quarter of this year reached 1.8223 trillion KRW, up 35% from 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 were 930.7 billion KRW, up 22% year-on-year. Talk Biz sales continued steady growth, increasing 16% year-on-year to 453.2 billion KRW. Among these, Talk Biz advertising-type sales such as Biz Board and KakaoTalk Channel grew 28% year-on-year despite the economic downturn. Talk Biz transaction-type sales, including Gift and Talk Store, increased 2% year-on-year.

Kakao’s content segment sales rose 51% year-on-year to 891.7 billion KRW. Story sales decreased 5% quarter-on-quarter due to the yen’s depreciation impact but grew 22% year-on-year to 227.6 billion KRW. Music sales increased 11% year-on-year to 209.3 billion KRW, and media sales rose 35% year-on-year to 118 billion KRW. Notably, game sales surged 162% year-on-year to 336.8 billion KRW, reflecting the impact of mobile game ‘Odin’s’ sales in Taiwan and the new release of ‘Umamusume: Pretty Derby’.

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

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

The operating profit margin failed to exceed double digits in the second quarter as well. Kakao’s operating profit margin in Q2 was 9.4%, down 0.2 percentage points from Q1. 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 that show operating profit margins ranging from 15% to 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 raised salaries. In fact, Kakao’s total annual payroll last year was 517.7 billion KRW, a significant 77% increase from the previous year.

Advertising Introduced to Open Chat

Namgoong Hoon, CEO of Kakao, said during a conference call after the Q2 earnings announcement, "The revenue model application for KakaoTalk Open Chat will begin in the fourth quarter of this year. Basically, an advertising model will be introduced first," adding, "Subsequently, B2C2C (business-to-consumer-to-consumer) and Web 3.0 business models will be applied."

CEO Namgoong plans to launch KakaoTalk Open Chat as a standalone app called ‘Open Link’ in the future. He said, "We plan to launch Open Chat as a standalone app called ‘Open Link’ to establish a domestic base and then expand overseas," adding, "We hope that in the near future, global fans who love Korean webtoons will be able to meet and discuss works on Kakao Webtoon’s Open Link."

Additionally, Kakao expects some slowdown in Talk Biz growth in the second half due to economic uncertainties and contraction in the online commerce market, and has also announced fundamental business restructuring.

He explained, "Starting in the second half, we plan to introduce search and content advertising based on interest-based Open Chat and improve its completeness," adding, "We will consider and experiment with attractive products for advertisers in places where user interests gather, such as shopping within KakaoTalk or local searches through KakaoMap."

New Emoticon Users Plummet Due to Google In-App Payment Policy

Meanwhile, Google expanded its mandatory in-app payment policy from only game applications to all apps starting in June, resulting in a sharp drop to about one-third in new users of KakaoTalk’s ‘Emoticon Plus’.

CEO Namgoong said, "(Due to in-app payments) there are inevitable negative aspects from the user’s perspective, such as higher price hurdles," adding, "New users of Emoticon Plus have dropped to about one-third."

He continued, "The impact of (in-app payments) is still in the early stages and needs to be monitored," but also explained, "We plan to prepare promotions in the second half to minimize the impact of in-app payments."

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