Kakao mulls selling entertainment unit amid IPO delay

A pedestrian walks by the Kakao headquarters in Pangyo, Gyeonggi Province. (Park Hae-mook/The Korea Herald)

Kakao is reportedly exploring the sale of its content affiliate Kakao Entertainment, raising eyebrows across the industry as the company struggles with a delayed initial public offering plan amid unfavorable market conditions.

Kakao on Wednesday issued a regulatory filing saying that it is “considering various strategic options” with shareholders to enhance corporate value and ensure sustainable growth for Kakao Entertainment, but emphasized that “no final decision has been made.”

The tech giant added that it will disclose any confirmed developments within a month or sooner if necessary.

While not a direct denial, Kakao’s statement fueled further speculation in the market that a sale may be imminent, especially following mounting challenges in taking its entertainment unit public.

According to industry sources, Kakao has recently sent letters to key shareholders — including Hong Kong-based Anchor Equity Partners, Saudi Arabia’s Public Investment Fund and the Singaporean sovereign wealth fund GIC — signaling its willingness to sell its stake in Kakao Entertainment.

Valuation estimates peg Kakao Entertainment at roughly 11 trillion won ($7.4 billion). The company was previously valued at 10.5 trillion won when it secured a 1.15 trillion won pre-IPO investment from PIF and GIC in 2023.

Kakao had been pursuing an IPO for Kakao Entertainment since 2019, beginning with the Kakao Page entity, but plans were repeatedly delayed due to public backlash over “split listings” and shifting market conditions. The firm even considered a US listing in 2021, but with global economic headwinds worsening, sources say the company may be leaning toward a sale now instead.

Kakao Entertainment operates three key businesses — in talent management, webtoon and web novel publishing and video production. Flagship services include Kakao Webtoon, Kakao Page and music streaming platform Melon.

In 2023, the company posted a consolidated revenue of 1.81 trillion won, down 3.2 percent on-year, while operating profit rose 16.5 percent to 80.6 billion won. However, the firm has recorded net losses for three consecutive years.

Its rapid expansion has been driven mainly by aggressive mergers and acquisitions. In 2022, it acquired US-based platforms Radish and Tapas for about 1 trillion won to strengthen its global content portfolio. In 2023, Kakao Entertainment also won a highly publicized bidding war for control of K-pop powerhouse SM Entertainment, temporarily boosting its market valuation to nearly 20 trillion won.

But the SM takeover came at a cost. Several key executives, including Kakao founder Kim Beom-su, came under legal scrutiny and were even detained, marking the company’s most serious crisis since its founding. Kakao’s reliance on low-interest debt to finance its mergers and acquisitions spree has also drawn criticism as the economic landscape shifts.

Kakao currently holds a 66.03 percent stake in Kakao Entertainment. Anchor Equity Partners owns about 12.42 percent, while PIF and GIC each own 5.1 percent. Chinese tech giant Tencent has about 4.6 percent. With the diverse shareholder structure, aligning interests for any potential sale of Kakao Entertainment could prove complex.