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South Korea's Kakao swings to 2020 profit on strong e-commerce

Company aims for growth as chairman vows to donate half his wealth

Kakao, South Korea's second-largest internet company, posted a full-year net profit of 167.1 billion won ($149.8 million), reversing a net loss of 341.9 billion won in 2019. (Photo by Yuki Kohara) 

SEOUL -- Kakao, South Korea's second-largest internet company, is aiming for further growth this year after swinging to a profit in 2020, thanks to strong growth in its e-commerce and online game businesses amid the pandemic.

The company posted a full-year net profit of 167.1 billion won ($149.8 million), up from a net loss of 341.9 billion won in 2019.

For the fourth quarter alone, Kakao's operating profit jumped 88% on the year to 149.8 billion won ($134.4 million), as sales rose 46% to 1.2 trillion won.

However, Kakao posted a 201.8 billion won net loss for the quarter due to a one-time loss of 454 billion won related to the company's write-down of its music streaming service, Melon, in response to a change in payment regulations. The government raised the amount that music streaming services must pay creators to 65% of revenue, from 60% in 2019. Streaming services also cannot offer users discounts for bundled downloads, starting this year.

The company has set lofty goals for this year, hoping to expand its revenue from its KakaoTalk chat app by 50%.

"I know it is challenging but we can reach the goal, considering the trend of the expansion," Kakao CEO Yeo Min-soo said during an earnings call on Tuesday. "Our number of e-commerce users is also similar to or more, compared with other platforms. We expect the business will grow more competitive, as we have added to the luxury goods lineup."

Analysts say Kakao's plans to list two affiliates this year will help raise its own value. Kakao is listed on the benchmark Kospi index and has a market capitalization of 41.1 trillion won.

"IPOs of Kakao Bank and Kakao Pay are scheduled for the first half of the year. We forecast that the upward revaluation of Kakao will continue," said Choi Jin-seong, an analyst at Cape Research.

Kakao's strong earnings announcement comes one day after its founder and board chairman, Kim Beom-su, said he would donate more than half of his wealth to society. Kim is the largest shareholder in Kakao, with a 14.2% stake. He is also the owner of K Cube Holdings, the No. 2 shareholder, which has an 11.3% stake.

"I made the decision to donate more than half of my wealth during my lifetime to the resolution of social problems," Kim said in a message to Kakao employees. "I thought that I should not wait any longer, as I see many problems in various areas are becoming more serious in these fast-changing times."

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