Kakao to bolster open chat, ad services for growth

South Korea’s leading online platform operator Kakao Corp. on Thursday unveiled plans to bolster its open chat and advertising businesses to address slowing growth momentum amid weakening profitability.

Kakao is set to launch a separate open chat app Open Link both at home and abroad with daily active users of 9 million, a group functionality allowing users to talk and share information with others including strangers with similar hobbies, interests and lifestyles.

The platform giant also plans to introduce ads to the open chat service in the fourth quarter, considering search ads that expose advertising content relevant to users' search results, rather than display ads on specific parts of the screen, to reduce dependence on major advertisers such as large conglomerates.

“We do have search ads on Daum but KakaoTalk is set to lead the expansion of ads in the search and discovery sections,” said Kakao Chief Executive Namkoong Whon during a quarterly earnings conference call.

Daum is Kakao's portal, while KakaoTalk is the country’s top messaging app.

GROWTH LOSING STEAM

The plans came as its key businesses – advertising and e-commerce – are losing growth momentum.

Sales of Talk Biz, its ads service based on KakaoTalk, fell 1.7% in the second quarter from the previous three months, while revenue from Portal Biz, its portal ad-oriented division, declined 10.2%.

Kakao has been heavily relying on local conglomerates with only 1% of advertisers accounting for 70% of the online behemoth’s total ad sales, a concern for Namkoong and the other executives on the call.

A slowing global economy and weakening consumption are expected to cut major conglomerates’ spending on ads, hurting Kakao’s Talk Biz, analysts said.

H2 GROWTH TO SLOW 

Kakao’s earnings in the second quarter already disappointed investors. Its operating profit rose 5.1% to 171.1 billion won ($131.7 million) from a year earlier with sales up 34.7% to 1.8 trillion won. Both profit and sales figures missed analysts’ forecasts, although they were quarterly records.

Its profitability remained weak as its operating profit margin was 9.4%, missing the 10% level for a fourth straight quarter.

That came as labor and marketing costs jumped 42% and 65% to 426.2 billion won and 150.3 billion won, respectively, on aggressive hiring and expansion into new businesses.

The company remained cautious over the outlook for the second half.

“Growth is likely to slow slightly in the second half due to overall uncertainties surrounding macro conditions and changes in user patterns amid an endemic era,” said Kakao Executive Vice President Bae Jaehyun.

Write to Jeong-Soo Hwang and Han-Gyeol Seon at hjs@hankyung.com
Jongwoo Cheon edited this article.