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Seoul, South Korea - Kakao (KRX: 035720) reported third-quarter 2023 earnings, highlighting continued user growth but weaker profits amid macroeconomic challenges.

Why It Matters

Kakao's recent acquisition of SM Entertainment has been socially controversial. 

In particular, the company has been under social pressure after South Korean President Yoon Seok-yul criticized Kakaomobility for charging excessive fees. 

In this situation, it's worth looking at Kakao's performance last quarter. 

The Key Points

  • Flagship KakaoTalk's active users grew 6% to 50.2 million as engagement remained strong.
  • Total revenue grew 16% to KRW 2.16 trillion ($1.65 billion), driven by a 30% increase in content sales. 
  • However, higher operating expenses weighed on profits. Operating income fell 7% to KRW 140.3 billion ($107 million), while net income plunged 64% to KRW 49.5 billion ($37.8 million).

The Business Details

Kakao's core messaging platform showed steady growth amid the challenging environment. 

The number of monthly active users of KakaoTalk in South Korea increased by 699,000 year-on-year. 

KakaoTalk's business, which includes advertising, commerce, and fintech services, generated revenue of KRW 517.7 billion, an increase of 11%.

However, the portal business, which includes the Daum portal and KakaoPage, declined 24% year-on-year to KRW 83.2 billion due to lower advertising demand.

Revenue from Kakao's game business also fell 12% to KRW 262 billion due to a decline in consumer sentiment.

Kakao's recent acquisition of SM Entertainment bore fruit as music revenues doubled. 

Webtoon revenues also rose 8% due to a surge in demand for original Korean content.

What they're saying: 

Kakao stated in its press release that

it aims to optimize costs by reducing hiring and marketing expenses. It's sharpening its focus on content strengths.

Philips Burble: 

Kakao faces short-term economic uncertainty. However, its platform reach and content pivot could position it well when conditions improve.