(2nd LD) Kakao Q3 net income plunges 63.9 pct on increased operating costs

SEOUL, - Kakao Corp., the operator of South Korea's top mobile messenger, said Thursday its third-quarter net profit fell 63.9 percent from a year earlier largely due to higher operating costs.

Net profit for the July-September period stood at 49.5 billion won (US$37.8 million) on a consolidated basis, compared with 137.2 billion won from a year ago, Kakao said in a regulatory filing.

Operating profit fell 6.7 percent on-year to 140.3 billion won, while sales increased 16.3 percent to 2.16 trillion won.

The earnings fell behind market expectations. The average estimate of net profit by analysts stood at 108.8 billion won, according to a survey by Yonhap Infomax, the financial data firm of Yonhap News Agency.

The company said its net profit dropped despite strong sales because of a sharp increase in its operating costs due to investment in infrastructure, including a data center, and restructuring of its subsidiaries, such as Kakao Entertainment Corp. and Kakao Enterprise Corp.

Sales of Kakao's flagship platform business grew 4 percent on-year to 1.03 trillion won in the third quarter as it added 700,000 more monthly active users from a year ago.

Of the platform sales, revenue from mobile messenger KakaoTalk rose 11 percent on-year to 517.7 billion won, largely thanks to commerce functions on the application, while revenue from the internet portal business fell 24 percent to 83.2 billion won.

Revenue from other platforms, including Kakao Pay and Kakao Mobility, increased 5 percent on-year to 428.5 billion won.

Kakao's content unit saw its sales jump 30 percent on-year to 1.1 trillion won with growth from its webtoon and media businesses and strong earnings of its K-pop powerhouse, SM Entertainment Co., which the company acquired earlier this year.

Revenue from Kakao's music business soared 105 percent on-year as SM artists posted record high quarterly album sales in the July-September period.

Excluding sales from SM Entertainment, Kakao's music business only added 3 percent on-year in terms of revenue.

In the earnings call, Kakao CEO Hong Eun-taek offered an apology to its shareholders over stock manipulation allegations involving the company in connection to its acquisition of SM Entertainment, saying the company is faithfully vindicating itself by cooperating with investigative authorities.

Kakao has been accused of inflating the stock price of SM Entertainment by pouring some 240 billion won into winning a bidding war against Hybe Co., the management agency behind global superstars BTS, in February.

Last month, the Financial Supervisory Service (FSS) referred Kakao, Kakao Entertainment and three of the company's senior executives, including Chief Investment Officer Bae Jae-hyun, to prosecutors on suspicion that Kakao inflated the stock prices.

Kakao founder Kim Beom-su is also suspected of involvement in the case, but the FSS has yet to refer him to the prosecution.

"We feel the bigger social responsibility that came along with the growth of the company and will push for a reorganization after giving a deep thought into our management system," Hong said.

Hong stressed the company will first focus on minimizing business risks for its shareholders and push ahead with new businesses as planned.

As part of Kakao's artificial intelligence business plan, Hong said the company will launch an AI content bot, a micro vertical AI service that curates customized content for its users, on its open chatting platform in the near future.

His remarks came amid speculation the planned release of Kakao's hyperscale AI model KoGPT 2.0 by the end of this year may be postponed amid the ongoing management risks.


Source: Yonhap News Agency