Kakao seeking rebound with gaming, O2O businesses

By Yoon Sung-won

Kakao said Thursday it will seek to recover its profitability through its gaming business and new services in the online-to-offline (O2O) sector this year.

In its regulatory filing, the company said it posted 21.2 billion won ($18.11 million) in operating profit in the first quarter, plunging 47.7 percent from a year ago, hit by sluggish performance in the advertising sector.

Kakao recorded 129.4 billion won in sales through advertisement platform business, down 11.1 percent year-on-year. It said the decline reflected the off-season factor and the termination of deals with a number of advertisement partners.

“Our advertising business did not perform well in general in the first quarter and the personal computer web advertisement sector was worse in particular,” Kakao Chief Financial Officer Choi Sae-hoon said during a conference call, Thursday.

Kakao’s advertising slump struck a contrast with its market competitor Naver, as the latter has succeeded in boosting its mobile advertisement performance despite negative seasonal factors in the first quarter.

The CFO expected that the advertising business will rebound in the coming quarters on the back of the launch of new ad platform services.

“We admit that our online advertisement business has suffered from a greater fall than our competitor and this was mainly because we have pushed for restructuring of our advertisement business since December,” Choi said. “But in the long-term perspective, we are expecting to boost sales in the second quarter and in the latter half of this year thanks to our integrated advertisement platform and new business models such as native advertising.”

Kakao said its sales reached 242.5 billion won, up 3.5 percent year-on-year, while net profit stood at 10.9 billion won, plunging 64.5 percent in the same period.

In the first quarter of last year, Kakao recorded 40.3 billion won in operating profit, 234.4 billion won in sales and 30.84 billion won in net profit.

Despite the downturn in the advertising sector, Kakao performed well in its gaming and commerce platform businesses.

Its gaming business recorded 70.4 billion won in sales on the back of strong performances of mobile games distributed through its mobile platform Kakao Talk, as well as better-than-expected popularity of its computer online game “Black Desert” in the European and North American markets.

“We have successfully launched Black Desert combining its developer Pearl Abyss’ capabilities and our market efforts,” Choi said. “We will retain the positive achievements by providing updates and drawing more new users.”

The commerce platform sector generated 18.3 billion won in sales thanks to growth in the mobile gift shop and mobile character merchandise sales, Kakao said.

In the O2O sector, Kakao said it expects to generate profits from Kakao Taxi in the latter half of the year. But Choi stressed the company does not plan to charge ordinary taxi drivers for using the service.

Kakao said it will launch new O2O services such as the designated driver service Kakao Driver and hair salon reservation service Kakao Hairshop in the second half of this year.

The company also said it will prepare for an on-demand home cleaning service and parking lot system service in the latter half of the year.

Kakao said it expects its recent acquisition of Loen Entertainment, provider of the nation’s top music streaming service MelON, will have a positive impact on its earnings starting the second quarter.

Kakao closed at 106,300 won at Seoul bourse, up 0.57 percent from the previous day.