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Business trends

Kakao's record earnings overshadowed by stock fall

South Korean chat app operator drops 11.8% after $1 billion share issuance and global stock dip

Kakao's sales jumped 35% to 1.9 trillion won in 2017 from a year ago.   © AP

SEOUL -- Kakao saw record-high earnings for last year, driven by strong growth in advertisements and content sales, the internet company said Thursday. But the good news is being overshadowed as investors dump the company's stock over worries about Kakao's $1 billion worth of new share issuance in Singapore last week.

The South Korean company, best known for its KakaoTalk chat app, said its sales jumped 35% to 1.9 trillion won ($1.75 billion) in 2017 from a year ago. Its operating profit went up 42% to 165 billion won, with its net profit attributable to shareholdings almost doubling to 110.6 billion won during the same period.

"We achieved balanced growth in all our businesses by spinning off key sectors as well as aggressive investments in new projects," said CEO Rim Ji-hoon in a conference call Thursday. "We will evolve KakaoTalk to an all-player platform as well as expand artificial intelligence technology to all of our services."

But the bigger news this week has been Kakao's falling stock price. From Monday to Wednesday, the stock lost 11.8% of its value. As of Thursday afternoon, trading in the stock was flat at 126,500 won.

The stock was one of the hardest hit in the country during this week's global market drop, in which the benchmark Kospi fell 5.1% through Wednesday. 

As of Thursday afternoon, the Kospi was up 0.61% on the day to 2,411.18.

Analysts say the company's move to raise $1 billion in Singapore by issuing 8.2 million global depositary receipts hurt its stock price.

"Foreign investors with GDRs can exchange the new shares listed in the Kospi. That should be a burden to its stock price," said Moon Jee-hyun, an analyst at Mirae Asset Daewoo. "Uncertainty is also expected to increase until the company makes it clear what it will do with the money."

Rim said that the company will spend the money investing and developing AI technologies, but did not give specifics. The company launched Kakao Mini in November, an AI speaker that offers voice assistant services connecting Kakao's platforms.

Oh Dong-hwan, an analyst at Samsung Securities, said Kakao's investments in Dunamu, a tech company that runs the South Korea's largest cryptocurrecy exchange, Upbit, also poses risks to the company. Kakao owns 21.81% of Dunamu shares.

"There are high uncertainties whether Upbit can exist in the future or trading amounts in the exchange depending on the government regulations on cryptocurrency exchanges," Oh said. "So, it is difficult to reflect Dunamu's current corporate value to Kakao. Shares of Kakao also dropped after the government's announcement to regulate [the cryptocurrency market]."

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