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Kakao's profit doubles as chat app ad revenue soars

South Korean internet company eyes Southeast Asia expansion

  © Reuters

SEOUL -- South Korean internet company Kakao's profit doubled in the third quarter following the introduction paid advertisements in its hugely popular chat app KakaoTalk, which is used by a majority of Koreans.

Kakao said its operating profit soared 93% to 59.1 billion won ($51 million) in the July-September period from a year ago, the company's best performance in four years. Sales jumped 31% on the year to a record high 783.2 billion won.

Quarter-on-quarter, Kakao's operating profit increased 46%, while its revenue climbed 7%.

"In a nutshell, we had a healthy growth," Yeo Min-soo, co-CEO of the company, said in a conference call. "Growth in the ad sector is very strong, but we also saw all the commerce, game, music, and paid contents sectors grow."

The earnings surprise comes one day after Kakao completed its 300 billion won stock swap deal with the country's largest mobile carrier, SK Telecom. The two companies last week signed a strategic partnership agreement to cooperate in e-commerce and digital contents, with the aim of helping each other fend off powerful global players such as YouTube and Netflix.

KakaoTalk led the company's growth with 162.4 billion won in sales in the third quarter, up 52% from the previous year, thanks to the launch of the advertisement in the chatting app in May. Music streaming service Melon also performed strongly, with revenue growing 11%.

Kakao expressed its desire to go abroad, vowing to expand its paid content business to the whole Southeast Asian region next year. Its two overseas business currently are in Japan and Indonesia.

"We want to expand the K-story business by selling strong intellectual properties with stories that have already proved successful in South Korea," the company said in a statement.

Analysts, however, say that Kakao should brace for tough competition in financial services, as a fintech firm Viva Republica is set to launch mobile banking service soon. Viva operates the financial services platform Toss, and it leads a consortium that last month applied for a license to set up an internet-only bank in South Korea, according to financial authorities.

"If Toss integrates the internet bank ... with its financial platform, we expect it to become a comprehensive financial services platform which will compete with Kakao Bank and Kakao Pay," said Angela Hong, an analyst at Nomura.

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