Kakao net drops 84 percent in third quarter to 137 billion won

Kakao reported lower-than-expected profit in the third quarter and was downbeat about the rest of the year following the massive service outage in October.

Kakao's office in Pangyo, Gyeonggi [YONHAP]

Kakao reported lower-than-expected profit in the third quarter and was downbeat about the rest of the year following the massive service outage in October.

In an earnings announcement Thursday, Kakao CEO Hong Eun-taek estimated the cost of lost sales and financial compensation for the meltdown last month at 40 billion won ($28 million).

The company's net came in at 137.2 billion won ($96.8 million) during the July-September period, down 84.2 percent from the year-earlier period and below the market consensus of 160 billion won.

The operator of the KakaoTalk messenger posted 150.3 billion won in operating profit for the third quarter, down 10.6 percent from the year earlier period, failing to meet the estimate of 179 billion won.

Revenue increased 6.8 percent to 1.86 trillion won, below the consensus of 1.9 trillion won.

The downbeat performance is attributed to lower advertising revenues amid an economic slowdown and weak sales in the game business.

Kakao’s earnings are essentially broken down into two: the platform business, which covers sales from mobile and web services like KakaoTalk, Kakao Mobility and Kakao Pay; and content, which includes revenue from games, webtoons and the Melon music streaming service.

Kakao’s platform business sales increased 27 percent on year to 986.9 billion won during the period.

The KakaoTalk messenger business reported 467.4 billion won in sales, up 15 percent on year. But the segment that tracks advertising revenues of Daum and other subsidiaries fell 8 percent on year to 109.8 billion won.

Overall content business sales declined 9 percent on year to 871.8 billion won in the third quarter, hit by the shrinking sales in the game business.

Game business sales plunged 36 percent on year to 296.1 billion won, affected by the underperformance of mobile games such as Uma Musume Pretty Derby and Odin: Valhalla Rising.

Sales in the story business sector, which includes webtoons, rose 6 percent to 231.3 billion won over the year-earlier period, backed by the sales of its original content.

Sales in the music business grew 27 percent on year to 250.2 billion won.

The company was cautious about the coming quarter, owing to a multitude of challenges.

“The fourth quarter will see a limited growth because of reduced advertising from large clients, lost sales from the blaze at a data center and a delayed reflection of sales of new businesses,” said Bae Jae-hyun, executive vice president at Kakao during a conference call.

Kakao servers were knocked out as a result of a fire at an SK C&C data center on Oct. 15. Messenger, banking, transportation, payment and e-commerce services were unavailable, degraded or intermittent for 127 and half hours as backup systems failed to kick in fast enough.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]