Kakao’s Q3 OP misses market consensus, stock down about 4%

Kakao Corp., the South Korean digital platform giant running the country’s dominant chat app to ride hailing and e-comics services, reported an over 10-percent dip in operating profit in the third quarter, missing the market consensus even without reflecting compensation costs for a data center fire.

Its consolidated operating income came to 150.3 billion won ($105.7 million) in the third quarter ended Sept. 30 after plunging 12.1 percent from the previous quarter and 10.6 percent from a year ago, Kakao disclosed in a regulatory filing on Thursday.

Revenue totaled at 1.86 trillion won, growing 2.0 percent on quarter and 6.8 percent on year but much slower compared to the double-digit growth in the previous periods.

Both are below the market consensus of 179.0 billion won for operating income over 1.9 trillion won in revenue compiled by local financial data provider FnGuide.

Kakao shares lost 3.63 percent to trade at 50,400 won on Thursday, as of 10:00 p.m. in Seoul.

The disappointing results were largely due to slowdown in advertisement revenue growth from the economic downturn and a plunge in game revenue amid a lack of new blockbuster games.

The earnings were poorer than expected even without reflecting reserves for huge costs over the hours-long breakdown of its services, ranging from chap app KakaoTalk and its related e-commerce business to taxi-hailing operation, in mid-October due to the fire at its main data center near Seoul.

The company estimates financial loss from the data center fire incident at about 40 billion won in total, said Kakao CEO Hong Euntaek at the company’s earning conference call on Thursday. The estimate includes lost sales and direct compensation to service users only. Kakao is currently checking damages at its business partners. Delays in launch schedule for new services are also expected, according to Hong.

The chief executive vowed to shore up the company’s business fundamentals while it is currently reviewing adding more data centers. Last month, Namkoong Whon resigned from Kakao co-CEO position after the service blackout.

In the third quarter, Kakao earned 986.9 billion won in revenue from platform business, which was up 6 percent on quarter and 27 percent on year.

Revenue from advertisement service via Kakao Talk chat app rose 3 percent on quarter and 15 percent on year to 467.4 billion won. E-commerce sales through Kakao Talk grew 14 percent on quarter and 12 percent on year. Other platform revenue gained 9 percent on quarter and 61 percent on year, thanks to the steady growth in transactions tied to mobile wallet Kakao Pay.

Revenue from content business shrank 2 percent on quarter and 9 percent on year to 871.8 billion won. The Story business, which includes digital cartoons service, contributed 231.3 billion won, up 2 percent on quarter and 6 percent on year. Music service delivered 250.2 billion won, up 20 percent on quarter and 27 percent on year. But revenue from mobile games operation fell 12 percent on quarter and 36 percent on year to 296.1 billion won as sales from newly launched titles began to slow.

Kakao reported its operating expense increased 3 percent on quarter and 9 percent on year to 1.7 trillion won in the third quarter.

By Cho Jeehyun