KaKao

- Second quarter revenue totaled KRW 376.5 billion, with KRW 26.6 billion in operating income

[Seoul, South Korea – August 11, 2016] Kakao Corp. (KOSDAQ 035720) today reported second quarter financial results under Korean-IFRS. Kakao’s consolidated revenue for the quarter was KRW 376.5 billion, with operating income of KRW 26.6 billion. Starting this quarter, earnings from Loen Entertainment are consolidated into the results, and Kakao’s revenue categories have been streamlined into Advertising, Content and Others.

Consolidated revenue for the second quarter increased 55.3% QoQ and 66.2% YoY. 

Revenue from advertising decreased 12.1% YoY due to decline in PC traffic, but seasonal increase in demand combined with solid performance from new mobile ad products including native ads helped bring a 5.3% increase QoQ to KRW 136.2 billion.

The Loen Entertainment acquisition brought positive results to the company’s content revenue. Consolidation of revenue from MelOn’s music sales brought significant growth both YoY and QoQ, to KRW 90.5 billion. Continued growth in global sales of Black Desert Online pushed revenue from games to KRW 78.3 billion, a 11.3% growth QoQ and a 45% YoY. Strong performances from Kakao Page, Webtoons and emoticon sales resulted in revenue of KRW 21.6 billion, a 20.8% and 469.1% increase QoQ and YoY, respectively. In all, significant growth from each sector brought revenue from the Content platform to 190.4 billion, a 107.9% increase QoQ and 215.2% increase YoY.

Revenue from the Others category, which includes revenue from commerce platforms and Loen Entertainment’s record distribution business, was KRW 49.9 billion, a growth of 132% QoQ and 349.1% YoY, respectively.

Kakao continues to make new investments and acquisitions in effort to create an ecosystem that fosters the growth of startups as well as new growth engines that support the core idea of ‘Connect Everything.’ Overall expenditures including labor costs and employee benefits increased with the acquisition of new companies, including Loen Entertainment, and aggressive marketing for Kakao Driver and Kakao Game brought an increase in marketing costs. As a result, operating costs for the quarter increased to KRW 349.9 billion.

In total, operating income for the second quarter was KRW 26.6 billion, a 26.2% increase QoQ and 132.8% increase YoY, and operating profit margin was 7.1%. Net income was KRW 13.2 billion, a KRW 2.3 billion increase from the first quarter.

A number of changes are expected for Kakao’s major services in the second half of the year. Kakao Talk will focus on supplying competitive content to heighten user experience in content consumption, and Kakao Talk Cheez will bring extra fun to the Kakao Talk experience. In the game sector, by self-publishing games such as Miracle Nikki for Kakao and My Home for Kakao, Kakao is in the process of expanding on its previous success in the mobile game industry. Kakao also plans to aggressively pursue growth in the game business through the launch of additional Kakao Friends IP games, including Friends Sachunsung for Kakao, in addition to an App Player for desktop computers. Kakao Page, an archetype for a successful paid content distribution model, is expected to record KRW 100 billion in annual transactions, and Daum Webtoon is preparing to re-launch as an independent company within Podotree in the third quarter. This move will allow Kakao’s Webtoon business to aggressively diversify its business portfolio, including IP licensing and more, and create additional revenue. Kakao Friends will diversify its character merchandise lineup through active partnerships in sectors ranging from F&B to fashion, and also launch a second flagship store following the successful launch in Gangnam. Meanwhile, Kakao will further its efforts to bring in meaningful results from the O2O sector, with Kakao Driver and Kakao Hairshop in market and Kakao Parking expected to launch within the year. (End)

[Appendix 1] Kakao Consolidated Earnings for 2Q 2016 (Unit: in million KRW, %)