2 weeks Ago By [email protected](KoreaTimes)
Kakao CEO Chung Shin-a speaks during an event on the company's AI service in Yongin, Gyeonggi Province, Oct. 22. Courtesy of Kakao Profit comes without sales growth, legal risks weigh on ride-hailing unit By Nam Hyun-woo Mobile platform giant Kakao on Thursday reported an improved operating profit for the third quarter of this year, but concerns still persist as the achievement came without growth in sales.
Additionally, its new AI service is drawing a lukewarm market response. During an earnings call, Kakao announced that the company's consolidated operating profit reached 130.5 billion won ($93.
48 million) during the July-to-September period, up 5 percent from a year earlier. However, sales declined by 4 percent year-on-year to stand at 1.92 trillion won.
CEO Chung Shin-a said that the company's platform division, including its flagship mobile messenger Kakao Talk, showed solid growth, but the content division, including its digital comic business, recorded disappointing earnings. In a breakdown, the revenue from the platform division grew 7 percent year-on-year to reach 943.5 billion won, buoyed by sales from ads.
On the other hand, the revenue from the content segment declined 14 percent year-on-year due to a slowdown in its music and entertainment businesses. Of them, Piccoma, the Japan-based webtoon app, suffered a 4 percent year-on-year decline in its sales. Against this backdrop, the improved operating profit is interpreted as a result of cost-saving efforts.
During the conference call, the company noted that its operating cost declined 5 percent year-on-year, because the company took a conservative policy in hiring new employees, and its sales-related costs dropped. Kakao describes various commission fees related to sales generated in advertising, game and media businesses as sales-related costs. These costs have long been accounting for nearly 40 percent of the company's total operating costs.
A decline in sales-related costs, however, means that the company's weakened revenue in the third quarter has lowered its costs as well, and the increase in operating profit does not necessarily suggest that the company's business is growing. "The company's gradual improvements in profitability through structural adjustments may be encouraging, but the primary prerequisite for a better rating for Kakao is a recovery in the growth potential of its top-line (revenue)," Mirae Asset Securities analyst Lim Hee-seok said. As part of efforts to secure future growth drivers, Kakao said it seeks to provide AI services to users, with Chung saying during the earnings call that its new chat-based AI service, Kanana, will begin closed beta service within the first quarter of next year.
"KakaoTalk is a messenger app focused on communication between people, while Kanana is an AI service aimed at interaction between users and AI, so they serve different purposes," Chung said. "Rather than concerns about cannibalization, we see a greater potential for expansion." Kakao founder Kim Beom-su speaks upon his release on bail from the Seoul Southern Detention Center in Guro District, Oct.
31. Yonhap Despite the company’s hope, the market response for Kanana remains lukewarm. Samsung Securities analyst Oh Dong-hwan said in a recent report that “Kanana, as a conversational AI service, faces limits in delivering more differentiated or improved answers compared to ChatGPT, given it relies on limited chat data.
” Oh noted that although Chung has set Kakao Talk and AI as the company’s future growth driver, it is difficult to find fresh services that can propel Kakao’s growth, calling for the company to roll out innovative services from the perspective of users. Concerns about Kakao's future extend beyond purely economic issues. The company’s top leader and founder Kim Beom-su was recently released on bail after 100 days of arrest for his alleged involvement in stock manipulation , while Kakao’s ride-hailing subsidiary, Kakao Mobility, remains in the crosshairs with regulatory authorities.
On Wednesday, the Securities and Futures Commission decided to slap a 3.4 billion-won fine on Kakao Mobility for allegedly inflating revenues in preparation for a stock market debut. A month earlier, the Fair Trade Commission fined Kakao Mobility 72.
4 billion won for allegedly demanding that competing taxi franchise operators sign partnership deals, blocking their access to its taxi-hailing services in case of rejecting the offer. The prosecution also appealed to a local court to annul Kim’s bail, claiming a heavy sentence is expected in the forthcoming ruling on Kim..
