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Kakao loses steam in race with Naver

[THE INVESTOR] Naver had long struggled to find new growth momentum as the firm, often dubbed the internet emperor in Korea, failed to catch up with the changing landscape of the information technology industry since the advent of the smartphone.

On the other hand, Kakao, the operator of internet portal Daum and mobile messenger KakaoTalk in Korea, has been the biggest beneficiary of the smartphone as its mobile messenger has taken the throne in the domestic market.

Just a few months ago, Kakao seemed to have obtained an upper hand in the competition with its compatriot rival, but the high-profile debut of Naver’s subsidiary Line on the New York and Tokyo stock markets on July 14 tilted the scale in Naver’s favor. 



Lee Hae-jin, chairman of Naver, recently said that “the firm’s foremost priority is to continue to defend its leadership in Line’s dominant markets, such as Japan, Taiwan, Indonesia and Thailand,” signaling that the company would ramp up efforts to grow global businesses.

He also pledged that the firm would try to make forays into the European and US markets where companies like Google and WhatsApp are already dominating.

Lee said he would do so by deploying different strategies, for example, investing in new technologies and services, such as big data and artificial intelligence.

In line with the efforts for global business expansion, Naver and Line announced last week that they would partner with French venture capital firm Korelya Capital to invest in startups in the European market as well as the US. Naver and its Japanese subsidiary will jointly invest a combined 100 million euros (US$112 million) in a fund to nurture a unicorn, a startup valued at US$1 billion, over the next five years.

Considering Line’s success, having grown from a small unit of the Korean internet giant into a multibillion dollar firm, Naver’s plan to tap into the global markets do not seem to be a far-reaching idea.

In contrast to Naver that is seeking global business expansion, Kakao, which has been focusing on the Korean market, has lost its vigor, failing to cash in on its new services, including Kakao Driver, and Kakao Hairshop, most of which are in the online-to-offline segment.

The firm’s operating profit in the April-June period, at 26.6 billion won ($24 million), was up 132.8 percent from the same period last year, but the improvement was largely due to the takeover of music streaming service firm Loen Entertainment earlier this year, which earned 17.8 billion won operating profit.

When the Loen Entertainment’s contribution is deducted, Kakao’s operating profit drops to 8.8 billion won, down 24.6 percent from the second quarter of last year.

“Kakao is expected to post 364.8 billion won in revenue and 21.9 billion won in the third quarter, down 3.1 percent and 17.9 percent, respectively, from the previous quarter,” said Sung Jong-hwa, an analyst from Ebest Investment & Securities, adding the struggling advertising and game businesses and increasing marketing costs are the main reason for the profit drop.

Being complacent on its home turf, the mobile messenger operator has also lose its touch in innovation, failing to catch up with the fast-changing market trends, according to market watchers.

Kakao’s Snapchat-like selfie app KakaoTalk Cheese, which was released this August, is a stark example of the firm lacking drive to move faster.

The launch of the mobile app was a rather belated move compared to Naver, whose own Snow selfie app, released in September last year, has already crossed the 60-million mark in the number of downloads.

KakaoTalk Cheese now has a little more than 3 million subscribers.

Reflecting the under-par business performance of Kakao, the firm’s shares reached a record low in a year, at 79,300 won, on Sept. 12 while Naver’s hit an all-time high of 903,000 won on Sept. 29.

By Kim Young-won (wone0102@heraldcorp.com)
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