Kakao reported a 7 percent rise in quarterly operating profit Thursday, with advertising sales on the ascent. The company behind South Korea's nearly ubiquitous messaging app unveiled plans to expand AI-powered advertising and buy back 150 billion won ($112 million) of shares for cancellation.
Operating profit reached 240.3 billion won, up from a year earlier but down 13 percent from the previous quarter's record high. Revenue increased 6 percent to 2.09 trillion won.
KakaoTalk had 49.7 million monthly active users in South Korea during the quarter, up just 0.4 percent from a year earlier. Despite the limited user growth, display advertising revenue jumped 35 percent as new ad formats attracted smaller businesses and existing advertisers increased spending.
The broader advertising and subscription business grew 11 percent, while commerce revenue rose 16 percent to 241.3 billion won. Purchases for personal use accounted for about 30 percent of merchandise transaction value on KakaoTalk's shopping services.
Kakao is now betting on artificial intelligence to unlock new advertising revenue from its vast user base, particularly by identifying consumers' purchasing intentions without requiring them to search for products.
"Unlike conventional search advertising, AI services can identify user intent without an explicit search and recommend relevant products or services at the right moment," CEO Chung Shin-a said during Thursday's earnings call.
The company expects AI advertising to contribute to revenue growth from 2027. It plans to complete infrastructure for personalized recommendations by the first quarter and begin testing AI Crew, an assistant designed to help businesses manage advertising campaigns, in December.
Chief Financial Officer Shin Jong-hwan said Kakao expects its AI business to approach breakeven in 2028 through revenue growth and cost reductions.
Its standalone AI services division posted a third-quarter operating loss of 64 billion won, widening from 46 billion won a year earlier.
To contain costs, Kakao plans to process simpler AI tasks on users' devices, use its own AI models and rent graphics processing unit computing capacity rather than make large upfront hardware investments.
Alongside its AI expansion strategy, Kakao announced a 150 billion won share buyback and cancellation plan aimed at enhancing shareholder value.
Chung said during the earnings call that the company would repurchase the shares and cancel them immediately after acquisition. In a separate regulatory filing, Kakao said it would acquire and cancel 5,154,639 shares. The buyback will run from Friday through Feb. 5, 2027.
Meanwhile, platform revenue rose 17 percent to 1.24 trillion won, supported by advertising, commerce, mobility and payments.
Content revenue fell 6 percent to 851.7 billion won, including a 15 percent decline at Piccoma, Kakao's Japanese digital comics platform.
Kakao maintained its full-year targets of at least 10 percent revenue growth and a 10 percent operating margin.
mjh@heraldcorp.com
