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Korea Herald
22-04-2025
- Business
- Korea Herald
Kakao at crossroads: AI pivot fuels calls to shed noncore units
Entertainment and mobility units under scrutiny, while financial arms face limited impact South Korean IT giant Kakao is once again at the center of deal speculation, as rumors of subsidiary sales continue to swirl despite the company's repeated denials. Just days after Kakao dismissed reports that it planned to offload its entertainment arm, Kakao Entertainment, new chatter emerged Thursday suggesting its taxi-hailing platform, Kakao Mobility Corp., may also be up for sale. Kakao Mobility quickly pushed back. A company executive reportedly told employees Kakao has 'no plans to sell its management rights' in the unit, stating, "While discussions have taken place among shareholders and investors over the replacement of financial backers, no decisions have been finalized." The speculation coincides with a sweeping overhaul at Kakao, led by CEO Chung Shin-a, who has pledged to consolidate resources around artificial intelligence, positioning AI as the company's next growth engine. Since the revamp began, talk of offloading noncore subsidiaries has intensified, with many viewing major divestments as inevitable. The biggest jolt came earlier this month, when local reports said Kakao Entertainment — a heavyweight subsidiary estimated to be worth 10 trillion won ($7 billion) — could be up for sale. Kakao denied, responding that 'all strategic options remain on the table." But the vague wording, coupled with the unit's continued net losses, only fueled expectations that a deal may be imminent. Kakao Mobility is also reportedly in talks to replace its financial investors. Seoul-based private equity firm VIG Partners is said to be negotiating to acquire a combined stake exceeding 40 percent, and some market watchers believe VIG may eventually seek part of Kakao's 57 percent holding for potential ownership takeover. Despite its public denials of any formal restructuring, Kakao's actions tell a different story. Over the past two years, Kakao has trimmed its subsidiary count by more than 30. The company has also confirmed plans to sell Kakao VX, a golf-tech unit under Kakao Games, by year-end, while its labor union also claims the company is preparing to offload Kakao Healthcare soon. The overhaul is also a response to years of criticism over Kakao's unchecked expansion. What began in 2010 as a messenger app has morphed into a sprawling and loosely governed tech empire, with key units like Kakao Games, Kakao Bank and Kakao Pay listed independently from the parent — prompting backlash over governance and accountability. 'Kakao is at a pivotal moment,' said Wi Jong-hyun, a professor of business management at Chung-Ang University. 'It needs to define what to keep and what to let go, focusing its energy on areas that align with its core identity, KakaoTalk, and its growth prospects.' While Kakao Entertainment holds promise in content, Wi said its inability to pursue a market listing — an important consideration for corporate strategy — dealt a decisive blow. The entertainment arm has attempted an initial public offering since 2019, supported by aggressive acquisitions. While these deals fueled rapid expansion, they also came with significant financial and reputational costs. Its purchase of K-pop giant SM Entertainment sparked a major governance scandal, with key executives, including Kakao founder Kim Beom-su, facing legal scrutiny for alleged stock manipulation during the takeover. "With the market debut now gone up in smoke, the best option for Kakao is to sell the entertainment subsidiary, quickly distancing itself from the crisis, securing meaningful capital, and streamlining its portfolio," noted Wi. Sales of the mobility unit are also crucial for Kakao's next chapter, he added. 'Kakao Mobility has come to symbolize the company's reputation as a power-tripping conglomerate encroaching on small businesses, which is why Kakao has been trying to offload the unit for years.' Wi, a longtime critic of Kakao's sprawling business model, said Kakao Games should be next on the chopping block, citing its limited contribution to growth and weak connection with the company's core identity as a messenger. Regarding Kakao Pay — once rumored as a divestment target — Wi views it as a strategic asset. "The payments data it generates will be highly valuable, especially in light of Kakao's AI ambitions," he said. An industry official, speaking on condition of anonymity, also said the impact on Kakao Pay and fellow financial affiliate Kakao Bank is likely to be limited. 'Kakao Pay is a core business, tightly integrated with KakaoTalk and offering strong synergy potential,' the official said. 'Kakao Bank, meanwhile, operates with considerable autonomy from Kakao, its largest shareholder, as it is regulated under the Internet-Only Bank Act.' Despite the strategic value that subsidiary sales could bring, Kakao faces significant challenges, including strong resistance from its labor union, particularly as it considers sales to private equity firms. The union has consistently protested these sales, arguing that such moves would harm employee interests and undermine corporate value.
Korea Herald
13-02-2025
- Business
- Korea Herald
Kakao to launch new AI service with OpenAI this year
Kakao Corp. on Thursday said it plans to launch a new AI-powered service with ChatGPT operator OpenAI later this year, as the Korean messenger giant ramps up its AI push through partnerships to stay ahead in the competitive landscape. During the company's earnings call for the October-December 2024 period, Kakao CEO Chung Shin-a outlined the company's goals and its blueprint for artificial intelligence, including its recently announced high-profile partnership with OpenAI. 'The strategic partnership with OpenAI is not just limited to model-related collaborations, but also includes joint service development between the two companies,' Chung told investors. She emphasized that the firms' mission is to popularize AI, enabling South Korean users to incorporate the technology into their daily lives. Under this mission, the two firms plan to roll out an AI agent that will go beyond the simple question and answer functions and perform highly-personalized and complex tasks across various services. 'We will do our best for users to experience this service within this year,' said Chung, without elaborating on the timing. In addition, Chung said Kakao's new conversational AI service, Kanana, has completed in-house beta tests and is currently working on the final touches to improve functions based on user feedback. She added that Kanana will be open for public beta testing in the first half of this year. The new service will enable multiple users to interact with the AI, such as in group chat settings. Furthermore, Kakao aims to enhance its search capabilities by integrating generative AI across its services. On Thursday, Kakao reported consolidated revenue of 1.95 trillion won for the October-December period last year, down 2 percent on-year. Its operating profit declined 33.7 percent on-year to 106.7 billion won. The company attributed the decline partly to a one-time bad debt expense incurred by its payment subsidiary, Kakao Pay, due to the Tmon incident. The e-commerce platform failed to pay vendors due to a liquidity crisis, forcing Kakao to make refunds to users. A decrease in revenue from its content businesses, including the music, game and story units, also weighed on the firm's overall earnings. As for 2024 overall, Kakao reported an annual revenue of 7.87 trillion won, up 4.2 percent from 2023. Its operating profit increased 6.6 percent on-year to 491.5 billion won.
