KaKao

First quarter revenue of KRW 443.8 billion and KRW 38.3 billion in profit

[Seoul, South Korea – May 11, 2017] Kakao Corp. (KOSDAQ 035720, CEO Ji-Hoon Rim) today reported first quarter 2017 financial results under Korean-IFRS. Kakao’s consolidated revenue for the quarter was KRW 443.8 billion with an operating income of KRW 38.3 billion.

The revenue figure represents a YoY growth of 83% and a QoQ decrease of 2%.

Kakao’s revenue from content businesses remained steady QoQ at KRW 221.8 billion but the figure represented a 142% increase YoY. Kakao’s music content business continues to be bolstered by the addition of Loen Entertainment and showed drastic YoY revenue growth at KRW 110.3 billion. Absence of new game titles, mainly due to intense competition in the market, is reflected in the 14% QoQ decline in game revenue. However, the game division’s quarterly revenue of KRW 80.3 billion still represents a 14% increase YoY, resulting from fresh revenue sources courtesy of self-published games and substantial earnings via PC games. Kakao Page and Kakao Talk Emoticons’ continued strong performance is reflected in the remaining content revenue, which grew 46% QoQ and 74% YoY to KRW 31.2 billion.

Revenue from advertising decreased 6% QoQ but increased 3% YoY to KRW 133.3 billion. Mobile ad revenue made up approximately 53% of the total figure.

KRW 88.7 billion was generated in the Others category. Although overall revenue dropped 2% QoQ due to seasonal issues, the figure represents a YoY increase of 312%, assisted by Kakao Talk Gift Store and Kakao Friends Flagship Stores’ growing sales.

First quarter’s total operating cost of KRW 405.5 billion resulted from marketing expenses aimed at strengthening key content businesses such as Kakao Page and Kakao Game, as well as costs related to the addition of Loen Entertainment.

In total, operating income for the quarter increased 82% YoY to KRW 38.3 billion with an operating profit margin of 8.6%. Net income grew KRW 26.8 billion QoQ and KRW 43.5 billion YoY to KRW 54.5 billion.

Going forward, Kakao plans to focus on the continued evolution of Kakao Talk and establishing a firm foundation based on artificial intelligence (AI) technology.

Kakao Talk Order allows for easy delivery from major franchises while Kakao Talk Mart offers fast and easy shopping, and both services have been well received since their recent launches. Users will enjoy even greater convenience once Kakao Talk Plus Friend begins offering direct reservations and purchases.

Kakao is also making great strides in the AI field. Since launching last February, Kakao Brain is busy at work establishing a true AI ecosystem for Korea, and a dedicated group within Kakao is in the process of developing a distinct AI platform that integrates seamlessly with various Kakao services, as well as practical smart devices.

The company’s key platforms also have major growth engines in place. On the advertising side, a more sophisticated platform that offers precision targeting is expected to launch in the 3rd quarter. Kakao Game will publish Onmyoji, a global blockbuster with more than 200 million downloads in China, Hong Kong and Taiwan, through its Kakaogame S brand in the second half of 2017. Multiple games featuring the ever-popular Kakao Friends IP will also launch. Kakao Page, which generated more than KRW 30.5 billion GMV in the first quarter, is expected to increase profitability through Cash Friends, a reward-based ad model, and by offering high quality video content. (End)

[Appendix 1] Kakao Consolidated Earnings for 1Q 2017 (Unit: in million KRW, %)

* Loen Entertainment's acquisition of 76.4% stake on March 16, 2016 applied to consolidated results from 2Q 2016