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Kakao's Q3 profit doubles as pandemic drives online demand

South Korean internet company is gearing up for banking unit's IPO

Kakao is best known for its KakaoTalk app but its operations cover a wide range of services, from internet banking to ride-hailing and gaming.   © Reuters

SEOUL -- South Korean internet company Kakao's operating profit doubled on the year in the third quarter as the coronavirus pandemic boosted revenue across its suite of online and digital services, which included gaming, internet banking and its popular chat app KakaoTalk.

Kakao announced Thursday that its operating profit hit 120.2 billion won ($106.3 million) in the July-September period, up 103% year-on-year. Its sales jumped 41% to 1.1 trillion won during the same period, with net profit soaring 179% to 143.7 billion won.

The strong earnings come as Kakao prepares to list  its online banking unit, Kakao Bank, on Seoul's stock market next year. Kakao owns a leading 33.5% stake in the bank and a successful listing would boost its own value even further.

"Kakao Bank plans to launch an IPO in 2021 and will select underwriters this year," said Angela Hong, an analyst at Nomura. "What is the most important for Kakao's valuation is the eventual IPO valuation of Kakao Bank."

Kakao is hoping that the banking unit will follow in the footsteps of Kakao Games, its online game arm, which raised 384 billion won in its stock market debut in Seoul in September. Its shares hit the upper limit of 30% on their debut, a sign that investors expected even further growth for the game publisher amid widespread social distancing measures. The shares have since dipped slightly below their debut but remain almost double the IPO price.

Kakao Games posted robust earnings in the third quarter, with its operating profit soaring 177.7% to 21.2 billion won from a year ago. Its revenue jumped 54.2% to 150.5 billion won during the same period thanks to popularity of its mobile game "Guardian Tales," released in July.

Analysts say advertising sales from KakaoTalk also contributed to the strong earnings, as did the growth of its payment, content and mobility subsidiaries. The mobility unit covers taxi-hailing, bike rental, driver-hiring and parking services offered through the Kakao T app.

"Kakao is attractive as its operating profit margin is rising on the back of KakaoTalk app's profit contribution. At the same time, sales in payment, contents and mobility units are growing quickly," said Park Ji-won, an analyst at Kyobo Securities.

Daishin Securities forecast that Kakao's ecommerce business will continue to grow as people use its gift-giving service more due to social distancing rules implemented to combat the coronavirus outbreak. Transactions through Kakao Pay are rising quickly, too, as more shops are adopting the digital payment service, according to Daishin.

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