Naver Aiming for 10 Trillion Won in Sales, Kakao Faces Shadow of Negative Growth

Naver Records Highest Q3 Performance
Kakao Faces Contraction Outlook
Judicial Risks Slow New Business Progress

Naver achieved its highest-ever performance in the third quarter. Despite the economic downturn, it leveraged strengths in commerce and content sectors, aiming to reach annual sales of 10 trillion KRW. On the other hand, Kakao, which had been chasing Naver, is expected to experience negative growth in the third quarter. The AI business, regarded as a new growth engine amid the growth limits of KakaoTalk, remains sluggish. Additionally, judicial risks are expected to cause further difficulties.

Kakao Lacks Growth Drivers Amid Advertising Market Slump, Core Revenue Source

Naver recorded sales of 2.4453 trillion KRW and operating profit of 380.2 billion KRW in the third quarter. Sales increased by 18.9% and operating profit by 15.1% compared to the same period last year. This is the highest quarterly performance ever, and if this trend continues, achieving annual sales of 10 trillion KRW is not a dream.

In contrast, Kakao, which is set to announce its earnings on the 9th, is expected to see negative growth in the third quarter. Financial information provider FnGuide projected Kakao’s third-quarter sales at 2.2282 trillion KRW and operating profit at 129.5 billion KRW. While sales increased by 19.9% year-on-year, operating profit decreased by 13.8%.

The difference between Naver and Kakao lies in the presence or absence of new growth drivers amid the advertising market slump. Both companies’ core businesses are advertising. However, the prolonged economic downturn has significantly slowed growth in the advertising market. Ultimately, it was important to minimize the decline in advertising revenue growth while driving high growth in new businesses.

Naver has steadily advanced by integrating AI technology into advertising. As a result, search advertising in the third quarter increased by 3.5% compared to the same period last year. The company explained, "Even amid the endemic phase, we were the only major global advertising platform to maintain steady growth every quarter." Additionally, the commerce and content sectors grew by about 40% year-on-year, leading overall performance.

Kakao is expected to be held back by the slowdown in growth of its ‘TalkBiz’ business based on KakaoTalk. TalkBiz is broadly divided into ‘advertising type (Biz Board, emoticons, etc.)’ and ‘transaction type (Gift, Talk Store, Makers, etc.)’. The problem lies in the revenue growth rate of the advertising type segment. It recorded nearly 30% growth in the first half of last year, but growth was under 5% in the first half of this year. A rebound in the third quarter also seems unlikely.

Although KakaoTalk has hit growth limits, the lack of viable alternatives is problematic. KakaoTalk’s average monthly active users (MAU) reached 48.2 million in the second quarter of this year. Since most of the nation already uses it, growth in South Korea has reached its limit. However, subsidiaries pursuing new businesses are facing difficulties, including undergoing restructuring.

Kim Beom-su, former chairman of Kakao, is appearing at the Financial Supervisory Service on the 23rd to be investigated regarding allegations of stock price manipulation related to the acquisition of SM Entertainment. Photo by Kang Jin-hyung aymsdream@

‘HyperCLOVA X’ Generating Revenue, ‘KoGPT’ Still in Testing Phase

Kakao faces even bigger challenges ahead. Its future growth engine, the AI business, is not gaining momentum. While it needs to accelerate new businesses, all key executives leading this effort are entangled in judicial risks.

Naver’s super-large AI ‘HyperCLOVA X’, unveiled last August, has begun to show results. A customer-tailored B2B (business-to-business) service combining ‘HyperCLOVA X’ with Naver’s services will be launched soon. It is expected to become a new revenue source. The AI advertising service ‘CLOVA for Ads’ is preparing a pilot service in collaboration with Nike at the end of this month. The company plans to expand the advertiser base in the first half of next year.

In contrast, Kakao’s AI ‘KoGPT 2.0’ has gone silent. Originally scheduled for release in October, no related news has emerged. As the year-end approaches, Kakao’s AI roadmap, including KoGPT 2.0, has yet to be announced. With competitors like Naver launching AI models and services one after another, concerns about Kakao’s weakening AI competitiveness are growing.

Judicial risks involving management have inevitably disrupted the ‘Beyond Korea’ strategy. This strategy aimed to strengthen competitiveness in overseas markets, but there is no leader to steer it. Bae Jae-hyun, Chief Investment Officer overseeing investment decisions for subsidiaries, was detained for violating the Capital Markets Act. Founder Kim Beom-su, head of the Future Initiative Center, was recently investigated over allegations of market manipulation related to SM Entertainment.

Kakao has begun internal reorganization through management reform. On the 3rd, Kakao established the ‘Compliance and Trust Committee,’ an external body to oversee compliance and ethical management of Kakao affiliates. The committee operates independently from Kakao and is involved from the selection of major risk factors to the establishment and operation of compliance monitoring systems for Kakao affiliates. Former Supreme Court Justice Kim So-young was appointed as the inaugural chairperson.

Kim, the center head, emphasized, “Kakao is currently in a crisis where the existing management methods are no longer sustainable. We will conduct thorough and swift inspections from start to finish and make every effort to establish a management system that meets public expectations, even if it requires painful sacrifices.” He added, “I will personally respect the decisions of the ‘Compliance and Trust Committee.’”

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