Kakao Tightens Profit Controls, Loss-Making Affiliates Tremble

Employees are arriving at work in the lobby of Kakao Agit in Seongnam, Gyeonggi./Seongnam=Photo by Kang Jin-hyung aymsdream@

Kakao, whose operating profit in the first quarter of this year dropped to half compared to the previous year, has declared cost efficiency measures. The company has decided to boldly reorganize businesses deemed less competitive, creating tension among its subsidiaries that continue to incur losses.

‘Zigzag,’ a fashion platform acquired by Kakao in 2021 with an investment exceeding 100 billion KRW, has been recording operating losses for several years. Last year, the operating loss was 51.8 billion KRW, a 37% increase compared to the previous year. This was due to significantly increased expenses from aggressive marketing and expanded hiring of development personnel.

Zigzag succeeded in expanding its scale by surpassing 100 billion KRW in sales last year. However, voices inside the company suggest that the business direction could change significantly this year as Kakao has declared cost efficiency measures. If no performance improvement is seen by the second half of the year, a large-scale organizational restructuring is highly likely.

An employee of Kakao Style, which operates Zigzag, said, “There is pressure to deliver concrete results before autumn comes. If organizational restructuring and personnel reallocation occur, resignations are inevitable, and employees will effectively perceive it as a layoff.”

Kakao Enterprise recently undertook a business restructuring. The company posted a net profit of 67.8 billion KRW in 2020 alone. However, after turning to a loss in 2021, its performance has continuously worsened. Last year, it recorded an operating loss of 140.6 billion KRW. Ultimately, Kakao Enterprise shifted its business focus to cloud services, and its leadership was replaced during this process.

Lee Kyung-jin, the new CEO of Kakao Enterprise, emphasized profitability improvement, saying, “The responsibility is heavy. Now is the time to deliver visible results.” Regarding restructuring, the new CEO explained, “There are no fixed plans for restructuring or executive dismissals,” but the industry expects many personnel to leave during the business reorganization.

Kakao’s commitment to cost efficiency is clearly reflected in its decision to separate the portal ‘Daum’ into a company-in-company (CIC). This decision came nine years after Kakao and Daum merged in October 2014 to form an integrated corporation. It was judged that establishing an organizational system capable of swift and independent decision-making was necessary to improve Daum’s competitiveness, which has significantly declined in the search market. However, since independent decision-making authority has been granted, responsibility for results such as performance improvement inevitably follows.

As of the first quarter, Kakao has 167 subsidiaries. Among them, cost efficiency efforts are expected to continue throughout this year in many subsidiaries experiencing deteriorating performance. Earlier, during the first-quarter earnings conference call, Bae Jae-hyun, Kakao’s Head of Investment, stated, “We are making efforts to further optimize costs across the entire Kakao community. We plan to reorganize businesses that are judged to have low competitiveness.”

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