Kakao Entertainment sheds loss-making units, revives IPO prospects

Kakao Entertainment Corp. has been divesting unprofitable music labels and digital content platforms, which it has gobbled up over the past few years as their deteriorating performance dragged on its financial health.

The entertainment arm of South Korea’s mobile giant Kakao Corp. is expected to continue divestments, raising expectations that the company could revisit its initial public offering, on hold since 2021.  

In February, Kakao unloaded the webtoon and web novel platform Next Level Studio Inc., which it acquired in 2022, to an unidentified domestic content firm.

Kakao also sold K-pop agency IST Entertainment to Beyond Music, a music intellectual property investment firm, for 26.7 billion won ($18 million) early this year.

IST Entertainment was launched in 2021 through a merger between Kakao’s in-house music label and another Korean entertainment company. IST reported a 4.6 billion won loss in 2024.

In February, it disposed of a 50.07% stake in 3Y Corporation, the company behind rising idol group QWER, for 8.7 billion won. QWER is building global fandom as K-pop sensation NewJeans is faltering amid legal disputes involving HYBE Co., the company behind BTS. The stake sale fetched 8.7 billion won.

The divestitures marked a reversal from its aggressive M&A spree since 2021. Its subsidiary count increased to 53 in 2022 from 14 in 2020.

However, the underperformance of some units has swelled Kakao's net borrowings to 655.0 billion won by the end of 2021 from 66.7 billion won a year before. Last year, more than 10 subsidiaries of the entertainment firm remained in the red.

Following the asset sales, its net borrowings halved to 347.0 billion won by the end of 2024. It turned a profit of 69.2 billion won in 2023, reversing a 13.8 billion won loss in 2022.

Last year, operating profit rose 16.5% on-year to 80.6 billion won, despite a 2.8% decrease to 1.81 trillion won in sales compared to the year prior. 

Next Level Studio reported a net loss of 1.5 billion won and 1.4 billion won in 2023 and 2024, respectively. Last year, 3Y Corporation posted a net loss of 1.0 billion won.

IPO BACK ON TABLE?

Industry observers say Kakao Entertainment may revive its IPO plan after beefing up financially. In 2019, the company, formerly Kakao Page, hired NH Investment & Securities Co. and KB Securities Co. as its IPO managers.

To enhance its enterprise value, it absorbed Kakao M, which runs the music streaming app Melon, in 2021. However, it has shelved the IPO amid backlash over its sprawling business expansion.

“Kakao Entertainment cannot help but speed up the IPO to enable an exit for investors who have poured more than 1 trillion won into the company,” said an entertainment industry official.

Tapas Media, a US digital comics platform, and the US fiction app Radish Fiction are in the process of liquidation. Kakao acquired them in 2021.

Write to Joo-Wan Kim at kjwan@hankyung.com

Yeonhee Kim edited this article.