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[News Focus] Record earnings, but Kakao, Naver can’t just celebrate

S. Korea’s online giants could be first targets of state-led profit sharing scheme

Online applications (Yonhap)
Online applications (Yonhap)
South Korea’s two online giants -- Naver and Kakao -- had the best year ever in 2020, benefiting from the rise of e-commerce and the contactless trend.

Yet, as the pain of those less fortunate grows, they may have to part with some of their profit if policymakers push ahead with an unprecedented profit-sharing plan they have vowed to introduce.

Kakao, the company behind the country’s near-ubiquitous messaging app KakaoTalk, on Tuesday reported a whopping 120.5 percent on-year jump in operating profit last year, setting a record of 456 billion won ($408.44 million). Annual sales rose to an all-time high of 4.1 trillion won, up 35 percent from the previous year.

Last month Naver, the operator of the country’s No. 1 web portal, reported all-time high earnings for 2020. Its revenue reached 5.3 trillion won, up 21.8 percent from last year, while its operating profit climbed 5.2 percent to 1.2 trillion won.

Their earnings announcements came at a time when officials with the government and the ruling party are discussing how to establish a legal framework for big companies to “voluntarily” chip in and help smaller firms that are struggling to stay afloat amid the economic fallout from the COVID-19 pandemic.

First to float the idea was former Prime Minister Lee Nak-yon, currently the ruling Democratic Party chairman. He revealed in January that the ruling party had formed a task force to address the growing economic bipolarization from the pandemic.

Throwing significant weight behind the idea, President Moon Jae-in, during the World Economic Forum held virtually last week, called on corporations that had thrived during the pandemic to share some of their profit with troubled businesses.

Neither Moon, Lee nor other officials involved in the discussion explicitly mentioned Kakao or Naver, but industry insiders and local media reports say it is almost certain that the two online behemoths would be the first targets, along with local food delivery application operator Baemin. The officials used the term “large platform operators” when talking about the companies that should be helping out.

Mindful of the discussions in political circles, Naver and Kakao spent extra time promoting their corporate social responsibility efforts during their earnings calls.

Naver has pledged that the company will continue its support for small and medium-sized enterprises, while Kakao Chairman Kim Beom-su has promised to donate half of his assets.

“Naver will utilize its technology and service capabilities to continue its support for 4.8 million SMEs and 1.6 content creators, increase collaboration, create new synergies and grow together,” Naver CEO Han Seong-sook said during the company’s earnings call Jan. 28.

Naver CEO Han emphasized during the annual earnings call that the company had increased its efforts to encourage mutual growth with small and medium-sized enterprises here.

Han started by introducing the company’s e-commerce business, in which the company most often works with local SMEs.

Throughout the earnings call, which lasted about an hour and 40 minutes, Han mentioned the SMEs around 30 times, stressing the company’s efforts to collaborate with sectors hit hard by the economic fallout from COVID-19.

Kakao Chairman Kim also stepped up to address Kakao’s investment in social issues.

On Monday Kim announced that he would donate half of his assets. Kim currently owns 12.5 million shares in Kakao, which are worth around 5.7 trillion won. With his stocks in K Cube Holdings included, the total value of his stock assets amounts to around 10 trillion won.

“I will try to find social issues that are beyond Kakao’s reach and provide support to those in need,” Kim said.

During an earnings call Tuesday, Kakao’s co-CEO Yeo Min-soo praised Kim, saying his donation would “work as a catalyst to improve corporate culture in our society.”

Bae Jae-hyun, executive vice president of Kakao, emphasized the company’s contributions to job creation in the country amid the economic fallout from the COVID-19 pandemic. Kakao created more than 2,000 jobs last year, according to Bae.

Although the ruling party suggested that large companies would be asked to contribute voluntarily under the new plan, the pressure seems to have spread even to companies that have not been identified as targets.

An official from a major IT firm in Korea, who wished to remain anonymous and to have the company’s name kept private, said companies are being extremely cautious about being mentioned in regards to the profit-sharing plan as it is yet unclear which companies would be expected to contribute how much.

Many individuals are raising concerns about it too.

According to a survey conducted by the Federation of Korean Industries involving some 500 individuals who own stocks, 51.6 percent of respondents said they do not approve of the plan. Around 42 percent of participants said they approve.

Six out 10 respondents expressed worries that the plan could infringe on the property rights of shareholders.

The Federation of Korean Industries last month also said the profit-sharing plan would affect competition in the local market as contributions would most likely be expected from Korean businesses, not international companies.

Meanwhile, the National Assembly will hold provisional sessions this month to conclude discussions over passing a related bill into law.

By Shim Woo-hyun(ws@heraldcorp.com)
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