Uncertainty grows at Kakao amid leadership vacuum: Sources

(Yonhap)

South Korea’s platform giant Kakao Corp. is struggling with multiple whammies amid prolonged legal risk. The company is grappling with a slowdown in growth, disappointing financial performance, and roadblocks to its restructuring efforts, including mergers and acquisitions, and artificial intelligence and artificial intelligence (AI) investments.

According to multiple sources from the information and communications industry and legal circle on Tuesday, Kim Beom-su, head of Kakao’s management reform committee, will mark 100 days of detention on Wednesday. Kim was detained on July 23rd, 2024 on charges of violating capital market laws and has been isolated from key company affairs, relying solely on limited consultations with family and attorneys.

Kim’s restraint period is set to last until December 7th. While he recently applied for bail, hoping to continue his trial without detention, the court has yet to rule on his request.

Kakao, in the meantime, is expected to release disappointing results for the third quarter on November 7th.

According to financial data firm FnGuide Inc., Kakao is projected to post a 6 percent on-year drop in revenue to 2.03 trillion won ($1.47 billion) and a 10.2 percent decline in operating profit to 126 billion won.

Legal risks that have persisted since 2023 have led to downsizing in Korea, weakening the company’s core advertising and content sectors and dragging down overall performance.

The restructuring efforts Kim had led, including reducing the number of affiliates, have also slowed. While Kakao trimmed its domestic affiliates to 125 as of June 2024 from 138 in December 2023, the process has since stagnated, reducing the count to only 122.

Employee pushback is another concern.

Recently, the registration rate of Kakao’s union, Kakao Crew Union, hit 50 percent. Employees that joined are opposed to changes in work policies, including the removal of flexible work hours and the introduction of mandatory core work hours.

The ongoing legal issues are affecting major subsidiaries, such as Kakao Mobility, which is under investigation for alleged ride-order favoritism, and Kakao Pay, which is facing scrutiny over personal data leaks.

Kakao’s ambitions for overseas M&A deals and AI investments have also been stalled.

Since Kim’s legal challenges began, planned acquisitions, including U.S. securities firm Siebert and European tax-hailing platform FreeNow, have been abandoned.

The company recently decided to scale back its global Kakao Webtoon services, withdrawing from Indonesia and Taiwan.

In the AI sector, where competitors like Naver are making significant investments, Kakao postponed its plans to launch its generative AI model, KoGPT 2.0. Instead, it released a new conversational AI service, Kanan, but its commercialization and profitability remain in doubt.

There is a growing industry sentiment that Kim’s return is essential for Kakao’s recovery.

“Given Kakao’s influence in Korea’s ICT industry and the potential it holds in the Korean-style AI field, it would be desirable for Kim to continue his trial while on bail,” an industry insider said.