Kakao reports big miss as growth engines hit profit

Kakao's net profit plummeted 93.4 percent on year to 87.1 billion won in the first quarter of 2023, the company blaming the high base effect due to a temporary surge in profit in 2022's first quarter as shares held for investment were sold.

Kakao's office in Pangyo, Gyeonggi [YONHAP]

Kakao's net profit plummeted 93.4 percent on year to 87.1 billion won ($65.9 million) in the first quarter of 2023, the company blaming the high base effect due to a temporary surge in profit in 2022's first quarter as shares held for investment were sold.

The figure fell far short of a market consensus of 126.2 billion won, as compiled by FnGuide. Operating profit fell 55.2 percent to 71.1 billion won, below analyst expectations of 122.7 billion won.

Sales were 1.74 trillion won, a 5.4 percent increase on year. The figure was below a market consensus of 1.83 trillion won.

The fall in operating profit was attributed to the building of redundancy in the company's data centers and increased spending on investment in new growth engines, such as in artificial intelligence (AI), cloud and healthcare.

The company blamed the economic slump and a fall in domestic sales from Kakao Games massively multiplayer online roleplaying game (MMORPG) Odin Valhalla Rising for the slow sales growth. Sales of ArcheAge War, a MMOPRG released in March, were not fully reflected in the first quarter.

Kakao CEO Hong Eun-taek explained that the company will continue to aggressively invest in new growth engine sectors to gain strong positioning in the respective industries and introduced a lineup of AI programs this year.

KakaoBrain will release an upgraded version of the Korean Generative Pre-trained Transformer (KoGPT) language model "KoGPT 2.0" by the latter half of the year. KoGPT 2.0 was initially scheduled for release in the first half of this year.

Upgraded versions of AI image generation model Karlo 2.0 will be released sometime this month.

Kakao Healthcare will release a business-to-business (B2B) digital service in which research centers and healthcare businesses can utilize data from medical centers by the second quarter.

In business-to-consumer (B2C) areas, the company will release a platform to offer daily life solutions for patients with diabetes or in need of checking their blood sugar levels by the fourth quarter. The platform will analyze daily life patterns with AI and offer specific solutions, such as tips on their diet and exercise.

"We believe this year's annual operating loss for our new initiatives will rise higher than we've seen in previous years, to a maximum 300-billion-won loss," said Kakao Chief Investment Officer and Executive Vice President Bae Jae-hyun in an online conference call Thursday.

"This is going to be a peak for our AI-related investment. At earliest, related costs will dwindle down by the latter half of this year, or will be dramatically reduced by next year."

BY LEE JAE-LIM [lee.jaelim@joongang.co.kr]