Anna Jiwon Park has been covering the politics at The Korea Times since the summer of 2024, when she joined the press pool for the Office of the President in Korea. Prior to that, she spent about five years reporting extensively on financial markets, regulatory authorities and the financial industry. She joined The Korea Times in 2019 after spending eight years as a broadcast journalist at Arirang TV, Korea’s leading global broadcaster, covering politics, defense and culture.
Operating loss clouds Kakao Entertainment's IPO plan
Kakao Entertainment headquarters in Seoul / Yonhap
By Anna J. Park
Loss in webtoon and web novel platform behind poor profitability
By Anna J. Park
Despite managing a superstar like IU, Kakao Entertainment suffered an operating loss last year for the first time in seven years, casting a shadow over its ambitious IPO plan. The unusual poor profitability of a major entertainment and content powerhouse hurts especially more, as its competitors, including HYBE and JYP Entertainment, are enjoying stock price rallies lately with their all-time-high earnings.
The entertainment subsidiary of the Kakao conglomerate posted an annual operating loss of 13.8 billion won ($10.5 million) last year and a revenue of 1.8 trillion won. While the annual revenue increased by about 50 percent compared to 1.2 trillion won in 2021, the 2021 operating profit of 29.6 billion won shifted to a loss the following year.
Market watchers cite poor earnings from the firm's webtoon and web novel businesses as the major cause of the deteriorated profitability. Kakao Entertainment launched Tapas Entertainment last September, by merging Tapas Media with Radish Media, both of which it acquired in 2021. The U.S.-based webtoon and web novel platform business posted a net loss of 228.2 billion won last year.
Tapas Entertainment image / Courtesy of Tapas Entertainment
Besides the unprofitable performance of the U.S. affiliate, three other content production subsidiaries of Kakao Entertainment ― including Kross Pictures, Next Level Studio and 3Y Corporation ― posted annual losses of 3.3 billion won, 2.2 billion won and 1.5 billion won, respectively.
Consequently, the valuation of Kakao Entertainment remained low for the past couple of years. The firm originally aimed to be valued at 20 trillion won when it goes public later this year. But its value still hovers at around 11 trillion won to 12 trillion won, barely up from the 10 trillion won assessment it received in October 2021.
Given that HYBE's market cap stands at 11.05 trillion won as of Monday, it is questionable whether Kakao Entertainment can even hold on to the 11 trillion won valuation. As opposed to the poor earnings by Kakao Entertainment, HYBE logged an all-time-high quarterly revenue of 410 billion won and operating profit of 52.5 billion won in the first quarter of this year.
Against that backdrop, Kakao Entertainment aims to raise profitability by focusing on its music business, which has been lucrative. Its collaboration with SM Entertainment is also expected to bring further growth.
“As we plan a variety of collaborative business partnerships with artists and management of SM Entertainment, the music business is expected to show a stronger profitability and growth by establishing an economy of scale to aggressively pursue K-pop's global expansion,” Bae Jae-hyun, executive vice president of Kakao, said during an earnings conference call in May.
Bae added that the company aims to show gradual improvements in its profitability with its global story business platforms, the main cause of the recent losses, through restructuring and integration.