Kakao CEO vows messenger app reform as Q1 misses forecasts

South Korea’s leading online platform operator Kakao Corp. plans to drastically change the way KakaoTalk, the country’s top mobile messenger app, operates to expand its user base after its first-quarter earnings missed market forecasts.

Kakao Chief Executive Namkoong Whon said during a first-quarter earnings conference call with analysts on Wednesday that KakaoTalk’s main features won’t be limited to chatting among friends, but will include various services shared among people who are not on the user’s contact list.

Kakao is already a household name in Korea, with its operations spanning various sectors, including digital content, mobility, games and fintech.

KakaoTalk provides free calling and messaging services. Like most platforms of its type, the user is able to share photos, videos, voice messages, locations, web page links, and contact information.

Users are able to create one-on-one conversations, as well as group chats with no limit on the number of users. The app automatically synchronizes the user’s contact list on their smartphone with the contact list on the app to find friends who are on the service.

“Because of the automatic search of friends on the contact list, KakaoTalk has spread quickly among Koreans. That was one of the service’s key strengths and limitations at the same time. We now want to expand it via open chatting communications, targeting 5 billion people around the world,” Namkoong said.

With envisaged new services, he said users will also be able to raise digital pets on their KakaoTalk profiles and exchange various third-party content on the messenger app more easily.

Q1 RESULTS BELOW MARKET FORECASTS

The move comes after the platform giant posted weaker-than-expected first-quarter results.

The company said on Wednesday it posted 1.65 trillion won ($1.31 billion) in sales for the three months to March on a consolidated basis, up 31% from the year-earlier period. Operating profit rose 0.7% on-year to 158.7 billion won.

The results, however, came below market expectations for 1.74 trillion won in sales and 161.6 billion won in operating profit.

Kakao’s first-quarter net profit jumped more than fivefold to 1.32 trillion won thanks to one-off gains from the disposal of part of its stake in Dunamu, the operator of Upbit, Korea’s largest cryptocurrency exchange.

Kakao’s platform business, which includes its e-commerce platform Talk Biz, posted 886 billion won in sales, up 27% from a year earlier.

Revenue from its content business, including Kakao Games, digital comics, music and others, grew 36% to 765.7 billion won.

Its story business, which refers to the entertainment content business, reported a 38% sales increase to a record 240.5 billion won on the back of the global hit of K-drama Business Proposal, a romantic comedy based on a Kakao webtoon, the company said.

It said its decent sales growth was also buoyed by the extended lineup of webtoons provided by Kakao Piccoma, its Japanese subsidiary that runs the largest digital comics services in Japan.

Analysts said online platform operators will likely report weakening earnings in coming quarters with people quickly returning to their pre-pandemic lifestyles after a long period of stay-at-home guidelines.

Naver Corp., Korea’s dominant online platform, last month reported disappointing quarterly earnings, reinforcing a view that the pandemic-driven boom may be coming to an end.

Write to Seung-Woo Lee at leeswoo@hankyung.com
In-Soo Nam edited this article.