Kakao's 4Q net profit plunges 80 percent on increased costs

The internet company's net profit slid from 51.7 billion won in the fourth quarter of 2014 to 10.2 billion won for the same period in 2015, with the company targeting expanded business in games and ads.
Written by Philip Iglauer, Contributor

Kakao, the operator of South Korea's popular chat app KakaoTalk, reported a huge loss in net profit on Friday, down 80.2 percent in the fourth quarter of 2015.

Kakao's net profit was 10.2 billion won ($8.55 million) in the fourth quarter, reduced to a fraction of the net 51.7 billion won ($43.22 million) in the fourth quarter of 2014, the company said.

The company's revenue in the October to December period edged down 4.85 percent to 241.7 billion won ($202 million) from 254.046 billion won ($212.41 million) in the fourth quarter of 2014.

Operating income dropped 68.8 percent year-over-year to 20.38 billion won ($17.04 million), compared with 65.31 billion won for the fourth quarter of 2014, with Kakao's mobile platform accounting for 57 percent of total quarterly revenue.

The company said the steep net profit drop resulted from its investment in new businesses including marketing and advertising expenses, and vowed to increase revenues going forward. But Kakao's weak revenue results from games and advertising.

Kakao said during its investor conference call on Friday that it recognised revenue from ads fell short of market expectations. "Kakao will secure new growth engines by expanding business in ads, games, O2O, commerce, fintech, and content sectors under the concept of 'user focused on-demand' approach," the company said in a statement.

Revenue from adverts was 148.4 billion won ($124.08 million) in the fourth quarter, down 16.95 billion won ($14.172 million) year-over-year, but compared with the previous quarter, Kakao's ad revenue increased, as mobile ads increased to 38 percent of total ad revenue, according to the company.

Revenue from games was 57.01 billion won ($47.66 million) in the fourth quarter, decreasing 16.5 percent year-over-year on fierce competition in mobile games, Kakao said during its conference call.

"Kakao Game will also enter the publishing business to proactively attract competitive games and will launch new Kakao Friends IP games with the goal of creating more success stories like Friends Pop," Kakao said. More than 85 percent of the company's revenue comes from games and ads.

Overseas ambitions appear to have taken a hit in the fourth quarter, too. Although the number of KakaoTalk's monthly active users expanded slightly in South Korea to over 40 million, the number of MAUs overseas stalled, with users outside its home base shrinking by a few hundred thousand to 48.32 million.

The two bright spots in the quarterly picture for the $7 billion mobile platform were in ecommerce and its miscellaneous businesses, including some O2Os, Kakao Pay, B2C emoticons and Kakao Bank Wallet.

Revenue from its online commerce site was 22.69 billion won ($18.97 million), up 58.9 percent year-over-year, and revenue from the "miscellaneous" category came in at 13.58 billion won ($11.35 million), up 122 percent year-over-year. Kakao noted that fourth quarter revenue from ecommerce was more than 20 billion won for the first time.

This month its board of directors approved the merger of its two game affiliates Daum Games and Nzin, and put Nzin CEO Namkoong Whon in charge of overseeing the company's game business as chief games officer.

Namkoong has a background in game development and a long personal relationship with Kakao chairman Kim Beom-soo. Kim and Namkoong co-founded Hangame, the popular online game portal, back in 1999. NHN Entertainment took over operations of Hangame in 2001. With the merger, the two are back together to turn around Kakao's grim game outlook.

Source: ZDNet.co.kr

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