Focusing on AI and Content.
Kakao opted for artificial intelligence (AI) and content insourcing in order to deal with its low level of profitability, which has haunted the company for years.
The company is planning to launch an AI service app in July this year and an AI speaker in the third quarter. The idea is to apply AI to each of its services like Kakao Talk, Daum News, Kakao Taxi, Kakao Navi and Melon for innovative daily living.
At the same time, Kakao is going to increase its investment in content business. This decision is based on an increase in its profits that has followed its acquisition of Loen Entertainment. Kakao is planning to set up a drama and entertainment program production company with Studio Dragon, a drama production company of CJ E&M, via Loen Entertainment to that end. Mobile and television content produced by the new firm will be provided on Kakao TV, Kakao Page, etc.
In the meantime, Kakao announced on May 11 that its sales and operating profits in the first quarter of this year increased 83% from the previous quarter and 82% from a year ago to 443.8 billion won (US$399 million) and 38.3 billion won (US$34 million), respectively.
The increase in sales and profits was led by content. Specifically, the company’s content sales soared by 142% year on year to 221.8 billion won (US$199 million). Music content sales accounted for almost half of the quarterly content sales and this has to do with the sales of Loen Entertainment, which began to be reflected in the second quarter of last year.
The sales of the other types of content including emoticons, which have become a reliable profit source for the company, reached 31.2 billion won (US$28 million) with a year-on-year growth of 74%. Game content sales, meanwhile, showed a relatively modest growth of 14% due to the lack of new games.
Sales from advertising decreased 6% from the previous quarter, but increased 3% from a year ago to 133.3 billion won (US$119 million). Mobile ad revenue made up approximately 53% of the total figure.
The company renovates itself starting from the second half of this year. As mentioned above, the purpose of the renovation is to turn itself into a company focusing on AI and content. In this context, it established Kakao Brain in February this year, initiating R&D projects for AI ecosystem creation. Its AI business team is currently working on its own AI platform and services and smart devices incorporating the platform.
Kakao also said on May 11 that nothing has been determined yet as to the spin-off of or attraction of investment in its mobility business unit in charge of Kakao Taxi and Kakao Driver services. “We are mulling over various ways to accelerate the growth of the mobility business unit,” said Kakao CFO Choi Se-hoon.