Kakao Q2 Results: Revenue Breakdown and Strategic Insights

Seoul, South Korea - Kakao (KRX: 035720) has announced its second-quarter results. The numbers suggest notable trends and strategic shifts significant for investors and business analysts.

Here are the highlights:

1. Revenue and Profitability:

• Kakao's Q2 revenue exceeded KRW 2 trillion (US$1.54 billion) for the first time, reaching KRW 2.425 trillion (US$1.87 billion).
  
• Revenue was split almost evenly between platform (48%) and content (52%).
  
• Operating income increased 60% sequentially but decreased 34% year-on-year, resulting in an operating margin of 5.6%.
  
• Net income decreased 44% year-on-year and 12% sequentially. The main reasons for this fluctuation were a high base from gains on the sale of shares and an additional corporate income tax of KRW 34.1 billion (US$26.24 million) due to a tax audit.
  

2. Platform revenues:

• Talk Biz: reached KRW 503 billion (US$386.81 million), an increase of 11% over the previous year, driven by message advertising and the Talk Gift segment, including first-party and delivered gifts. However, there was a slight decline of 2% in the quarter despite the highest number of Talk Gift buyers since the beginning of the year.
  
• Portal Biz: There was a 13% year-over-year decline due to the deconsolidation of a subsidiary and a reduction in portal quality control. However, the quarterly figures showed an increase of 7% to KRW 89.5 billion (US$68.87 million) due to high seasonality.
  
• Other: There was an annual growth of 6% and a quarterly growth of 8%. This growth was driven by Kakao Mobility's taxi and parking businesses and Kakao Pay's financial services, which contributed KRW 396.3 billion (US$305.05 million).
  

3. Content Revenue:

• Game segment: Revenue was KRW 268.6 billion (US$206.72 million). The annual revenue of the game business decreased by 20%. This was mainly due to existing game titles reaching a revenue stabilization point. However, quarterly figures increased by 9% due to new releases and first-anniversary events.
  
• Music: A staggering 130% YoY and 107% QoQ growth was recorded. Excluding SM Entertainment, annual growth was 15%, and quarterly growth was 4%. The significant increase is attributed to in-house artists' success and SM Entertainment's integration.
  
• Story Segment: The Story segment, which includes Entertainment and Piccoma, grew 1% for the year and the quarter. Broken down, the Entertainment sub-segment declined 10% for the year but increased 4% for the quarter due to the Golden Week holiday and the 7th-anniversary event.
  
• Media: On an annual basis, Media revenue decreased by 38%, mainly due to the concentration of the production lineup in the second half of 2023. However, the quarterly figure increased by 8% due to new production lineups, including notable shows like "You Have Done Well."
  

4. Investment and Strategy:

• Operating expenses increased to KRW 1.929 trillion (US$1.48 billion) due to investments in AI, data center diversification, and business consolidation.
  
• Kakao aims to strengthen its infrastructure and invest more in AI and healthcare as part of its future roadmap.
  

5. User metrics:

• KakaoTalk's monthly active users in Korea increased by 703,000 users year-on-year and 175,000 users sequentially.
  
• The transformation of KakaoTalk, a strategic move initiated last year, significantly increased user engagement. Daily visits to the Open Chat tab reached 10 million, and the Friends tab had over 30 million users.
  

US$1=KRW1299.56