Kakao pledges to trim non-core businesses unrelated to messaging, AI
The logo of Kakao is displayed at its office in Seongnam, Gyeonggi Province, July 23. Yonhap
Instant messaging and mobile platform conglomerate Kakao will trim down non-core businesses that have little to do with KakaoTalk, its popular messaging app, and artificial intelligence (AI), its chief said, Thursday.
During an earnings call for the second quarter of this year, Kakao CEO Chung Shin-a said the company will streamline its portfolio within the second half of this year by trimming down businesses that lack close alignment with Kakao Talk and AI services.
“We are currently in the process of defining the core and essence of the business for Kakao headquarters and all its subsidiaries. We have identified that innovation through KakaoTalk and AI services is the company’s primary focus,” she said.
“For businesses that are deemed unrelated to KakaoTalk or AI, we plan to classify them as non-core and aim to streamline operations in the second half of the year with a sense of urgency.”
However, Chung did not elaborate on how the company’s streamlining will unfold, saying, “we will communicate with the market when detailed plans come up.”
Kakao founder Kim Beom-su enters the Seoul Southern District Court, July 22, to attend a court review on an arrest warrant against him. The court issued the warrant the following day. Yonhap
‘Fingers in too many pies’
The announcement came amid mounting criticism and risks surrounding Kakao and its affiliates. Kakao has faced doubts over its sprawling expansion into numerous business domains, including those traditionally meant for smaller enterprises. In the process, the company encountered several legal accusations, one of which led to the arrest of the group's founder and top leader Kim Beom-su.
The Seoul Southern District Prosecutors’ Office indicted Kim, Thursday, on charges of violating the Financial Investment Services and Capital Markets Act. He was arrested late last month for allegedly attempting to manipulate the price of SM Entertainment's stock in February of last year, during Kakao’s acquisition of the K-pop management agency.
Kim’s arrest sparked immediate concerns over Kakao Group, as he was spearheading Kakao’s governance restructuring and leading the company’s delayed entry into the AI services market.
Kim is the largest shareholder of Kakao, owning a combined 23.75 percent of the company’s shares. This substantial stake enables Kim to exert considerable control over a vast network of Kakao companies, holding full or a controlling interest in dozens of affiliates that extend to more than a hundred subsidiaries.
The arrest of Kim is expected to pause mergers and acquisitions, investments and the initial public offerings of Kakao’s affiliates since these actions require approval from the top decision-maker.
"While there are recent challenges in the external environment surrounding Kakao, we remain committed to ensuring that all services led by Kakao and its key subsidiaries continue to operate smoothly,” Chung said.
“We understand the concerns of our shareholders and regret that we are facing such circumstances while our team is focused on business renewal and AI innovation. However, we are determined to work together to overcome these challenges.”
While a slew of IT and electronics companies are striving to take the early lead in the AI services market, Kakao has not been very successful. Kakao has been reiterating it will soon reveal its own AI model or services since the first half of last year, but over a year has passed without any such announcement.
Chung said Kakao will introduce its first AI chat platform within the second half of this year. She noted that the company will focus on the cost-efficient strategy of quickly launching AI services that users can easily access for easier monetization, “rather than heavily investing in developing Kakao’s own large language models.”
She said the service will be launched in an independent app separate from Kakao Talk to prevent the side impacts of AI hallucinations, given that Kakao Talk has over 48 million users, including those who are not used to AI services.
Kakao CEO Chung Shin-a speaks during a press conference at the company's data center in Ansan, Gyeonggi Province, June 11. Courtesy of Kakao
Despite lingering questions about Kakao and its affiliates, the company posted solid earnings figures in the second quarter of this year. From April to June, revenues reached 2 trillion won ($1.45 billion), up 4 percent from a year earlier, and operating profit jumped to 134 billion won, up 18 percent year-on-year.
In detail, the company’s platform business, which includes messaging and a web portal, logged 955.3 billion won in sales, up 10 percent from a year earlier. Conversely, sales in the content business, which includes gaming, music, and other media content, declined by 0.4 percent year-on-year to 1.05 trillion won, largely due to weaker performance in the gaming sector.