Kakao reports 68% drop in net profit in second quarter

Kakao reported a 68 percent plunge in net profit to 101.2 billion won ($77.3 million) for the second quarter on Thursday.

The figure fell far short of market expectation of 188.6 billion won compiled by market tracker FnGuide.

Sales rose 35 percent on year to 1.82 trillion won in the April-June period, slightly short of the expected 1.83 trillion won. Operating profit came in at 171.0 billion won, up 5 percent on year, also below expectation of 175.8 billion won.

The steep fall in net was due to a one-off expense from tax adjustments in subsidiaries, explained Kakao. The growth slowdown in the post-pandemic era, especially contraction in the e-commerce market, and cost increases were also cited for the lower-than-expected earnings.

“The market situation is not favorable as concerns about a global economic slowdown continue from the beginning of this year,” said Namkoong Whon, Kakao CEO, during an online conference call Thursday.

“The pandemic-driven high base effect from the last two years has added burden on the first half of this year in terms of growth rate, and this is expected to continue into the latter half as well.”

Kakao’s business is essentially divided into two: the platform business, which includes mobile and web services like KakaoTalk, Kakao Mobility and Kakao Pay; and content, which includes revenue from games, webtoons and Melon music streaming service.

Kakao’s platform business sales increased 22 percent on year to 930.7 billion won, 51 percent of the total.

Among the platform business, the messenger business reported 453.2 billion won in sales, up 16 percent on year. Advertising sales drove the figure, growing 28 percent on year.

The growth of its messenger business has significantly slowed compared to the same period last year, when its revenue increased 52 percent.

Namkoong said “we concluded that the essence of our business lies in advertisement and commerce,” and that Kakao Talk will be upgraded in the second half of this year with a focus on entertainment and e-commerce features.

The revenue of other segments in the platform business, which include Kakao Mobility and Kakao Pay, rose 52 percent to 375.1 billion won.

About the possible sell-off of Kakao Mobility, Bae Jae-hyun, executive vice president at Kakao said that “selling part of Kakao Mobility shares was considered as only one of the options” to improve the company’s business, maintaining Kakao's previous stance on the issue.

Facing criticism for leveraging market dominance, Kakao has been mulling sales of its stake in Kakao Mobility, which runs the Kakao T taxi-hailing app, to become the second largest shareholder. The discussion on the sales deal is currently on hold, after Kakao Mobility CEO Ryu Gung-seon "asked for a halt to discussions of a stock sale deal" on July 25.

Meanwhile, Kakao’s content business sales rose 51 percent on year to 891.7 billion won in the second quarter.

Sales in the story business sector, which includes webtoons, rose 22 percent to 227.6 billion won, up 22 percent on year, backed by the sales of its original content.

However, the figure was down 5 percent from the previous quarter, as the sales growth of Kakao Japan’s Piccoma webtoon platform slowed due to the weakening Japanese currency.

Game business sales rose 162 percent on year to 336.8 billion won thanks to robust sales from Uma Musume Pretty Derby, the latest mobile game that was developed by Japan’s Cygames and published by Kakao Games, and the global release of online mobile game Odin: Valhalla Rising.

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]