Kakao reports decline in yearly performance for 2022

Kakao's office building in Pangyo, Gyeonggi [YONHAP]

Kakao reported a decline in yearly performance for 2022, weighed down by slowing economy as well as a fire incident at its data center in October.

The company’s net profit shrank 38 percent to 1.02 trillion won ($811 million) in 2022, according to its regulatory filing Friday.

The figure missed the analyst estimate of 1.62 trillion won compiled by FnGuide.

Annual operating profit dropped 2.4 percent to 580.5 billion won. Sales rose 15.8 percent to 7.11 trillion won.

It is the first time in four years that Kakao’s operating profit took a downturn.

The decline in net was due to “a non-cash goodwill impairment charge of 690.9 billion won, and one-off expenses from acquiring Lionheart Studio’s shares,” said Bae Jae-hyun, Kakao chief investment officer and executive vice president, during the conference call Friday.

Goodwill impairment occurs when a company’s asset is evaluated to be carrying less value than at the time of purchase.

For the fourth quarter, Kakao reported net loss of 539.3 billion won, compared to the previous year’s net profit of 224 billion won. The quarterly operating profit decreased 5.8 percent to 100.4 billion won, partly due to the service outage caused by a fire at its data center in Pangyo last October.

“Last year was indeed rough,” said Kakao CEO Hong Eun-taek.

“Growth has been slowed in the core businesses due to external factors such as unfavorable macroeconomic environment and endemic situation, while the fire incident at SK C&C data center in October disappointed many of Kakao’s stakeholders,” said Hong.

The slowdown in growth is likely to continue well into the first half of the year, according to Hong.

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.

Platform business sales increased 16 percent to 3.77 trillion won, while content businesses grew 15 percent to 3.34 trillion won.

For the KakaoTalk messenger app, Kakao will continue to focus on improving community-based messenger services to boost traffic this year.

Artificial intelligence (AI) and digital transformation in the healthcare sector are also priorities, said the CEO.

“Instead of directly competing with global companies, we will focus on vertical AI services through Kakao Brain’s Ko-GPT,” said Hong.

Moreover, Kakao plans to work with SM Entertainment in the global music distribution and K-pop businesses.

The tech company said Tuesday that it will acquire 9.05 percent of SM Entertainment for 217.2 billion won to become the second-largest shareholder of the K-pop company.

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