Skip to content
  • KOSPI 2745.82 -9.29 -0.34%
  • KOSDAQ 910.05 -1.20 -0.13%
  • KOSPI200 373.22 -0.86 -0.23%
  • USD/KRW 1351 0 0%
  • JPY100/KRW 892.43 -0.29 -0.03%
  • EUR/KRW 1457.53 -5.27 -0.36%
  • CNH/KRW 186.03 -0.22 -0.12%
View Market Snapshot
Management

Kakao Group’s past, present and future as conglomerate

The tech giant has virtually become a creator of culture in South Korea; the entertainment sector is its next focus

By Aug 17, 2021 (Gmt+09:00)

7 Min read

Unlike other major manufacturing-oriented conglomerates in Korea, Kakao's first business was digital-based.
Unlike other major manufacturing-oriented conglomerates in Korea, Kakao's first business was digital-based.

Kakao Corp., which a decade ago was merely a mobile messenger operator, has now grown into one of the largest business groups in South Korea.

The increased prevalence of the term “Kakao Group” among the country’s key media outlets signifies that Kakao has virtually become a conglomerate, just like the Samsung Group and the Hyundai Motor Group, in its size and sphere of influence within the Korean society. The terminology offers a stark contrast to its archrival Naver Corp., as the term “Naver Group” is hardly used by anyone in South Korea.

Kakao has materially achieved the conglomerate status as well. Looking at the numbers provided by the Korea Fair Trade Commission (KFTC), Kakao only had 26 affiliates in 2014 but now has 128 firms under its umbrella. In terms of market cap, Kakao Group is now the biggest business conglomerate in South Korea that has no presence in the manufacturing sector. It has a bank, a payment service, a game company, an entertainment company, a fashion unit as well as a mobility platform.

Some economic experts note that Kakao’s stellar growth over the past decade signifies South Korea’s paradigm shift from a manufacturing-oriented country to a global leader in digital sectors including the metaverse.

The acquisition of the fashion platform Zigzag in April allowed Kakao to create a new fashion unit KakaoStyle.
The acquisition of the fashion platform Zigzag in April allowed Kakao to create a new fashion unit KakaoStyle.

The aggregate market cap of Kakao Group affiliates currently adds up to more than 100 trillion won ($85.1 billion), thanks largely to the successful IPO of KakaoBank Corp. earlier this month. Kakao Group is the fifth-largest business conglomerate overall in South Korea as of Aug. 13 with a market cap of 107 trillion won ($91.1 billion), after the Samsung Group at 728 trillion won ($619.8 billion), the SK Group at 206 trillion won ($175.4 billion), the LG Group at 151 trillion won ($128.6 billion) and the Hyundai Motor Group at 143 trillion won ($121.7 billion).

Last year, virtually no one expected Kakao Group to be included in the top-five list of Korea’s business conglomerates by market cap. Many in South Korea are still trying to interpret how the group has surpassed the traditional giants such as the Lotte Group, the POSCO Group and the Hanwha Group this year.

South Korean children grow up using Kakao's various range of services from early in their age.
South Korean children grow up using Kakao's various range of services from early in their age.

PUBLICLY LISTED KAKAO UNITS HAVE GROWN

Kakao Group’s rapid growth in size is first driven by its holding company, Kakao Corp. Kakao Corp.’s market valuation grew from 34 trillion won ($28.9 billion) at the end of last year to 63 trillion won ($53.6 billion) on Aug. 17, making it the fifth-largest firm on Kospi after Samsung Biologics Co. Analysts highlight that Kakao Corp. could enjoy sustained growth in stock price largely due to the stock split in April and strong earnings in the first half of 2021.

The group’s second unit that was listed for public trading in September last year, Kakao Games Corp., also multiplied its size by 228.12% versus the market cap based on the IPO price. The game company’s market cap has grown from 1.7 trillion won ($1.4 billion) last September to 5.8 trillion won ($4.9 billion) as on Aug. 17 this year.

Kakao Bank has a larger market cap than the largest banking group KB Financial Group. 
Kakao Bank has a larger market cap than the largest banking group KB Financial Group. 

The third unit that underwent the IPO process, KakaoBank Corp., was only valued at 18.5 trillion won ($15.8 billion) based on its IPO price, but has grown to 41.5 trillion won ($35.3 billion) as of Aug. 17.

MORE UNITS TO BE LISTED IN 2021 & 2022

Kakao Group will list more affiliates in 2021 and 2022. The group’s digital payment unit Kakao Pay Corp. plans to be listed in the fourth quarter, while Kakao Mobility Corp., Kakao Entertainment Corp. and Kakao Japan Corp. will likely list by 2022.

According to the investment banking industry, Kakao Pay is valued at 13 trillion won ($11.1 billion), Kakao Entertainment at 12 trillion won ($10.2 billion), Kakao Japan at 9 trillion won ($7.7 billion) and Kakao Mobility at 6 trillion won ($5.1 billion).

If all of these four key affiliates are successfully listed with at least their current levels of valuation, Kakao Group will be valued at around 150 trillion won ($127.7 billion), at par with the LG Group and the Hyundai Motor Group.

Other units that are growing rapidly include its beauty unit Wyatt Corp., the operator of the Kakao Hair Shop service and the distributor of the shampoo brand Dr.FORHAIR. Yanadoo Corp., which operates the smart educational service and platform for children, Kakao Kids, is also growing fast.

Kid's education is another growth segment targeted by the Kakao Group.
Kid's education is another growth segment targeted by the Kakao Group.

“Kakao’s continued expansion in the digital sector has increased the revenues generated in the whole ecosystem, especially those of its business partners. The consumers of Kakao’s wide range of services have largely benefited,” said a tech industry official.

Some game industry officials also said that Kakao Games have brought more competition in the mobile gaming sector, which has been largely dominated by NCSoft Corp. for many years. But the recent success of Kakao Games’ mobile game ODIN: Valhalla Rising pushed NCSoft out of the top position from the mobile app stores operated by Apple and Google. 

Kakao has also shown shrewdness in expanding from the digital to the physical world. Golf provides a good example of such a move. Kakao will spend 150 billion won ($131 million) to build a country club through Gaseung Development Ltd., which is 55% owned by its screen golf unit Kakao VX Corp. Kakao VX has about a 30% share of the country’s screen golf market.

CULTURE & ENTERTAINMENT AS NEXT FOCAL POINTS  

Kakao Group’s next focus is on the culture and entertainment sector. Its music affiliate Melon Co. is the dominant leader in the music streaming market. Melon will be merged into Kakao Entertainment by Sep. 1 this year, following the decisions of the board members of the two companies in July. Some analysts highlighted that the merge will raise Kakao Entertainment’s valuation from 12 trillion won ($10.2 billion) to 20 trillion won ($17 billion).  

Melon's Melon Music Awards (MMA) is one of the key pop music award ceremonies held in South Korea.
Melon's Melon Music Awards (MMA) is one of the key pop music award ceremonies held in South Korea.

Kakao Entertainment on Aug. 17 has also acquired a 100% stake in Antenna Music, a label established by the famous singer-songwriter You Hee-yeol. Antenna is known as the pioneer of integrating indie music with pop culture in Korea, and currently houses famous singer-songwriters such as Lucid Fall and Peppertones. Outside the music sector, Yoo Jae-suk, arguably the most famous show host and TV personality in South Korea, is also managed by Antenna.

Some investment banking sources said that Kakao Entertainment is currently having negotiations to purchase SM Entertainment Co.’s shares held by the founder Lee Soo-man.

Kakao-acquired Antenna Music's leading indie rock band Peppertones.
Kakao-acquired Antenna Music's leading indie rock band Peppertones.

Webtoons make up another important pillar in Kakao’s entertainment business. According to the global app data company AppAnnie, Kakao Japan’s webtoon platform Piccoma recorded $120 million in revenue on Google Play and Apple’s App Store in the second quarter of this year. The figure was more than double that of Naver affiliate Line Manga’s $50 million during the same given period.

“The gap between Piccoma and Line Manga is likely to widen unless Line Manga comes up with something really brilliant,” said a global webtoon expert. Line Manga was Japan’s top webtoon platform by sales between 2013 and the third quarter of 2020.

Analysts highlight that Piccoma could far outperform Line Manga’s revenue in the last quarter due to continued investment outside the webtoon business. Piccoma has been putting large sums of money recently into web novels and audiobooks, thanks to a $511 million investment from Anchor Equity Partners in May. Piccoma is also running TV commercials in Japan to raise brand awareness.

Piccoma is the leading webtoon platform in Japan.
Piccoma is the leading webtoon platform in Japan.

In Japan, Kakao Group is also trying to secure more intellectual property (IP) rights, which Piccoma’s webtoons and web novels will be based on. The group’s holding company Kakao Corp. has an 8.3% stake in Japan’s content giant Kadokawa Corporation, making it the largest shareholder.    

“In Korea, Naver also became the dominant market leader in webtoons shortly after overtaking Daum. In the content platform markets around the world, the winners usually take the lion's share, if not everything. Naver’s Line Manga needs to act fast if it doesn’t want Kakao’s Piccoma to take more shares of the pie,” said professor Jang Min-gi of Kyungnam University.

Write to Joo-wan Kim, Jun-ho Cha and Min-ki Koo at kjwan@hankyung.com
Daniel Cho edited this article.
More to Read
Comment 0
0/300