Expect Top-line Growth from Reorganization
The author is an analyst of KB Securities. She can be reached at leesunhwa@kbfg.com. -- Ed.
From real-time communication service to all-around interest-oriented service
— On Dec 7, Kakao added an emoji sticker function to the KakaoTalk profile board. We believe this will increase user traffic.
— Among KakaoTalk’s five tabs (i.e., Friends, Chats, View, Shopping and More), Chat boasts the largest traffic, at ~42mn daily active users, with Friends at ~22mn DAU. The change to profile board should increase no. of users visiting Friends as well as extend time of stay.
KakaoTalk reorganization needed; weak profit models given company’s heavy user traffic
— KakaoTalk has penetrated 92% of the domestic market for messaging apps but only 15% of the digital ad market and 5% of the e-commerce market. For the sake of user convenience, Kakao has been delaying the launch of profit models despite its heavy user traffic.
— In the face of a declining stock price (following listing of subsidiaries) and a withdrawal from some businesses amid controversy over large companies hampering mom-and-pop businesses, Kakao plans to focus more on its flagship businesses (i.e., ads, e-commerce), particularly profit models via KakaoTalk.
Expect top-line growth from reorganization (more ad inventory, boost in Gift GMV)
— On Sep 30, Kakao introduced Bizboard on Friends, aiming to increase ad inventory (Bizboard was previously added to Chats). For 4Q22, however, we see Talk Biz revenue growth at just 1.8% YoY, as Kakao used Bizboard temporarily as a notification board for the Oct 15 data center fire. However, the Friends reorganization should raise user traffic, activating bids for ads and boosting Gift GMV as well. We see overall Talk Biz revenue jumping 22.5% YoY in 2023.
KakaoTalk reorganization has begun; Talk Biz revenue to jump 22.5% YoY in 2023
— Beginning with the introduction of the emoji sticker function, Kakao is set to reveal a string of service plans. For instance, the emoji plus service will be in place so that friends can execute responses with emojis for various events that users post on their profile boards (e.g., birthdays, promotions). Also, KakaoTalk plans to launch a gift function on the profile board so that users can directly send gifts from the board. We see Commerce revenue growth at 10.1% in 2023.
— Kakao is planning to turn its messaging app’s profile board into an SNS platform via expansion of the profile space (i.e., change from horizontal scrolling to vertical) and introduce AI artist Karlo, which enables users to create their own images. User communication should increase and time of stay should be extended. Introducing ad content on the platform should raise ad inventory as well. We see Advertising revenue growth at 32.5% in 2023.
— Kakao plans to also introduce a search function for Chats, allowing users to search information via internet portals while in chat mode. A standalone open chatting app is also in the works, which could boost ad inventory and raise revenue via new subscription models.