Kakao slips below Naver in Q4 revenue

South Korea’s tech giant Kakao Corp. reported 4Q revenue of 1.78 trillion won ($1.5 billion) in 2021, a 45% jump on-year. The figure is slightly lower than its rival Naver Corp.’s fourth-quarter revenue of 1.93 trillion won. 

The operator of the uber-popular KakaoTalk messenger app announced its quarterly earnings report on Friday. 

Kakao’s operating profit for the October-December period fell 28% on-year to 108.5 billion won, hit by rising labor costs.

“The cost of labor surged 98% higher than the previous year on the back of a jump in wages, followed by the cost of the four main insurance coverages including severance pay,” the company’s CIO Bae Jae-hyun said.

The slide is also due to the lackluster performance of Kakao Games Corp. The revenue from the Kakao Corp. subsidiary’s latest game, Odin Valhalla Rising, released last June, plunged in the last quarter of the year. 

Revenue from the game publisher slid from 463.1 billion won posted in the third quarter to 276.8 billion won in the fourth. 

The other sectors had better performances. 

Revenue from BizTalk -- sales from in-app purchases on the messenger platform -- rose 30% on-year to 475 billion won during the fourth quarter.

“Gifting through the messenger app was considered to be a generational preference but the spending pattern now transcends generations,” outgoing Kakao co-CEO Yeo Minsoo said. 

The company’s content platforms also fared well.

Revenue from paid content such as webtoons jumped 29% on a yearly basis to 211.3 billion won. Sales of game content also skyrocketed 97 percent in the same period, thanks to robust interest at home and abroad. 

“Coupled with original content, customized algorithms, and aggressive marketing, we will expand our market share in the Japanese digital cartoon industry,” said Yeo.

The co-CEO emphasized that the company will make concerted efforts to enter the European market, starting with France. 

Looking at the bigger picture, the tech company's annual revenue surged 48% to 6.14 trillion won. Annual operating profit rose 31% to 596.9 billion won. 

Naver also enjoyed a successful 2021, with record-high annual revenue. The figure rose 29% to 6.72 trillion won on-year while operating profit climbed 9%.

The hike in sales is thanks to the rapid growth in the content and e-commerce sectors. 

Digital cartoon platform Naver Webtoon, photo editing app SNOW, and metaverse platform Zepeto saw meaningful expansions in 2021. 

EARNING BACK TRUST 

Despite the widespread adoption of its messenger app, Kakao is struggling to rebrand its image and win back the trust of investors. 

For the first time ever, Kakao announced a shareholder return plan on Friday.

During the next three years, up to 30% of what the company designates as surplus cash flow will be allocated to investors. In detail, 5% of the surplus will be used as cash dividends and the remaining 10 to 25% will be used to either buy back or retire shares. 

In line with this plan, the board of directors will discuss the cancellation of 300 billion won worth of Kakao shares sometime this year. 

Just a day prior, Kakao’s CEO appointee Namkoong Whon wrote about the target stock price on Facebook.

“My salaries and incentives will be on hold and I will only receive the legal minimum wage until Kakao’s stock price reaches 150,000 won,” he wrote.

During Friday’s conference call, the current co-CEO Yeo said, “Kakao has enjoyed rapid growth. But in the process, we have suffered growing pains and lost the society’s trust, for which I feel heavily responsible.”

Yeo is expected to wrap up his term next month.

Write to Minki Koo at kook@hankyung.com
Jee Abbey Lee edited this article.