Kakao's 3Q Revenue Hits 'All-Time High' but Operating Profit Shows 'Negative Growth' (Summary)

Advertising Market Slowdown and Community Operating Profit Decline Impact... Platform Business Growth
Kakao CEO Hong Euntaek: "Financial Impact of Compensation Not Significant"

[Asia Economy Reporter Kang Nahum] Kakao has hit a growth plateau. Although its revenue recorded the highest quarterly figure ever, the growth rate remained in the single digits. Operating profit, which had grown every quarter since Q4 last year, turned to a decline. This is attributed to the global economic downturn dampening growth in the advertising and commerce markets, and a sharp drop in sales in the gaming sector, which faced controversy over differential operations for domestic users.

Revenue at 'All-Time High', Operating Profit Shows 'Negative Growth'

On the 3rd, Kakao announced that its consolidated revenue for Q3 reached 1.8587 trillion KRW, with operating profit at 150.3 billion KRW. Revenue increased by 7% year-on-year, while operating profit decreased by 11%. The operating profit margin stood at 8.1%. The decline in operating profit was due to reduced profits from key affiliates and increased investments in new initiatives for future growth engines. Kakao’s standalone operating profit was 120.8 billion KRW, up from 96.5 billion KRW in the same period last year, but the community operating profit decreased from 102.8 billion KRW to 79.1 billion KRW during the same period.

The new initiatives include Kakao Enterprise, Kakao Brain, and Kakao Healthcare, which are preparing cloud, artificial intelligence (AI), and healthcare businesses under the 'Beyond Korea, Beyond Mobile' strategy. These affiliates recorded an operating loss of 49.6 billion KRW.

Platform segment revenue for Q3 was 986.9 billion KRW, up 27% year-on-year. Among this, Talk Biz revenue grew 15% year-on-year to 467.4 billion KRW, continuing its growth trend. Talk Biz advertising revenue, including Biz Board and KakaoTalk Channel, decreased by 4% quarter-on-quarter due to a slowdown in the advertising market and seasonal off-season effects, but Talk Channel revenue expanded, resulting in an 18% year-on-year growth.

Talk Biz transaction-type revenue, including Gift and Talk Store, increased by 12% year-on-year. Portal Biz revenue decreased by 8% year-on-year to 109.8 billion KRW. Other platform segment revenue grew 61% year-on-year to 409.8 billion KRW, driven by increased mobility demand and steady growth in transaction volume linked to Kakao Pay revenue.

Content segment revenue was 871.8 billion KRW, down 9% year-on-year. Story revenue grew 6% year-on-year to 231.3 billion KRW despite reduced promotions for management efficiency. Music revenue increased 27% year-on-year to 250.2 billion KRW, and media revenue rose 13% year-on-year to 94.1 billion KRW. Game revenue was 296.1 billion KRW, down 36% year-on-year. This reflects the stabilization of initial revenue decline after the Taiwanese launch of the mobile game 'Odin' and the base effect from last year’s Odin launch. Operating expenses rose 9% year-on-year to 1.7084 trillion KRW.

[Image source=Yonhap News]

"'KakaoTalk' Outage, We Will Establish Fundamental Measures... Financial Impact of Compensation Estimated at 40 Billion KRW + α"

Kakao plans to establish and announce fundamental measures related to the fire at the Pangyo data center and is reviewing various compensation options for stakeholders, including users and partners. The company also aims to enhance user experience and service stability, laying the groundwork for KakaoTalk’s evolution and securing mid- to long-term growth engines.

Hong Eun-taek, CEO of Kakao, said at the earnings conference call, "Since KakaoTalk is a service used by the majority of the nation, we must fulfill the corresponding responsibilities. We will thoroughly investigate to ensure no negligence in our duties and establish and implement fundamental measures to prevent recurrence." He added, "We will disclose improvements related to this incident as much as possible to contribute to the advancement of the domestic IT industry and restore trust."

Regarding the financial impact of user compensation, CEO Hong said it would not be significant. "Costs may arise in fulfilling our social responsibilities, but the financial impact will be short-term and one-off," he said. "The short-term financial impact from revenue loss and direct compensation identified so far is 40 billion KRW, but since support measures have not yet been finalized, it is difficult to give a definitive answer."

On concerns about business continuity following the resignation of CEO Namgoong Hoon, Hong said, "Since I have had active discussions with CEO Namgoong about business vision, there is no change in the non-acquaintance-based expansion strategy."

Meanwhile, Kakao emphasized that despite criticism of expanding affiliates excessively, the number of major affiliates is fewer than ten. Bae Jaehyun, Kakao’s Chief Investment Officer (CIO), said during the conference call, "There are concerns about the increasing number of affiliates, but I hope attention is paid to the characteristics of the affiliates rather than just the number."

He added, "Currently, 80% of Kakao’s affiliates are small companies with fewer than 30 employees. They consist of global IP studios such as webtoon and web novel studios, game development, and video and music production studios, as well as some startups. Going forward, we are considering investments that can increase contributions to startups in line with Kakao’s social responsibilities and status."

Regarding additional listings of subsidiaries, CIO Bae said, "We are reviewing the listing issues of Kakao communities from the perspective of Kakao’s overall corporate governance. We plan to discuss with existing shareholders and investors of the relevant affiliates in a way that protects Kakao’s shareholders and enhances shareholder value."

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