Kakao, Subsidiary Sale Ahead of Q2 Earnings… Focus on AI Strategy

Kakao is set to announce its second-quarter earnings while entering emergency management due to the arrest of founder Kim Beom-su.

According to a report by IBK Investment & Securities on the 29th, Kakao is expected to record a revenue of 2.05 trillion won and an operating profit of 125.9 billion won in the second quarter, representing a year-on-year increase of 6.6% and 11.3%, respectively.

By major segment, the platform sector is expected to show strong performance with a 11.6% growth compared to the previous year, while the content sector is expected to see only a 2.4% increase, indicating a slowdown in growth.

Notably, the slowdown in the music division’s growth and the decline in game division sales stand out, following the diminishing effects of the SM Entertainment acquisition.

Despite these challenges, Kakao is steadily progressing with the development of new AI services.

The recently established AI dedicated organization “Kanana” is integrating the capabilities of Kakao Brain to develop generative AI, which is planned to be utilized in KakaoTalk’s business services.

There is a growing industry focus on Kakao’s future strategy.

There has been speculation about the possibility of raising funds through the sale of subsidiaries, with discussions about the sale of assets such as Kakao Entertainment and Piccoma.

However, it seems unlikely that these sales or an initial public offering (IPO) will occur in the short term.

There is also an evaluation that Kakao’s current market capitalization is difficult to justify based solely on its main business.

Daol Investment & Securities pointed out that the recently highlighted legal risks and the possibility of selling subsidiary shares could limit Kakao’s platform expansion potential.

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