Naver and Kakao New CEOs' First Performance Rated as 'Passing Grade'

Yangsa's Record Highest Sales in Q2
Under the Influence of Economic Downturn in the Second Half
Membership Restructuring and Business Segmentation
Setting Goals to Drive Profitability

[Asia Economy Reporter Seungjin Lee] Choi Su-yeon, CEO of Naver, and Namgoong Hoon, CEO of Kakao, delivered decent results in their first quarterly earnings since taking office. Both companies maintained growth by achieving record quarterly sales, but their operating profit margins declined slightly. With concerns over slowing growth due to the global economic downturn, the leadership of these two executives is expected to be put to the test in the second half of this year.

Sales Increased, but Operating Profit Margin Declined

Naver and Kakao recorded their highest-ever quarterly sales in Q2 this year, but both companies left something to be desired in terms of profitability improvement.

Naver posted sales of 2.0458 trillion KRW in Q2, a 23% increase compared to the same period last year. Operating profit slightly increased by 0.5% to 336.2 billion KRW. This is the first time Naver’s sales exceeded 2 trillion KRW since the management integration between Line and SoftBank last year. Kakao’s Q2 sales rose 35% year-on-year to 1.8223 trillion KRW, and operating profit increased 5% to 171 billion KRW.

However, both companies saw their profitability decline due to increased labor costs and other burdens. Naver’s operating profit margin in Q2 was 16.4%, compared to over 20% last year. Kakao’s operating profit margin was 9.4%, contrasting with the over 10% margins recorded from Q1 2020 through Q2 last year.

Since the traditional off-season for platform industries begins in Q3, the decline in profitability is expected to continue. Additionally, with growing uncertainties such as the global economic slowdown, CEOs Choi and Namgoong have taken decisive measures for change.

Naver to Restructure Membership

Naver is set to reorganize its commerce division. The strategy is to maximize profitability by simultaneously driving structural improvements and external expansion.

As part of structural improvements, Naver will revamp its membership structure and raise commission fees on 'Cream,' a limited-edition product resale platform.

CEO Choi said during the Q2 earnings conference call, "Considering the diversified usage patterns of users, we will strengthen benefits and efficiently manage point costs to gradually create a structure that can improve profitability in the commerce division." Cream’s commission fees, currently 2% for buyers and 1% for sellers, will be raised to the platform’s commission level (5?10%).

In the content division, Naver will continue to expand its scale. This contrasts with Kakao, which plans to moderate the growth pace of its overseas story subsidiaries and adopt a conservative approach to personnel and marketing investments. After acquiring eBookJapan, Japan’s largest e-book platform, in April, Naver aims to reclaim the top position in Japan by actively distributing webtoon content through eBookJapan starting in the second half of the year.

Kakao to Overcome KakaoTalk’s Limits

Kakao plans to segment functions to overcome the limitations of its national messenger, KakaoTalk. Profiles will transform into spaces for sharing daily life, similar to Instagram and Facebook. Open Chat will be spun off into a separate new application called ‘OpenLink,’ with enhanced advertising and commerce features.

CEO Namgoong said during the Q2 earnings conference call, "With the revamp planned within the year, when friends discover my profile, they will be able to leave a ‘thumbs up’ on the status message or fun emoticons, turning it into an interactive space where mutual communication is possible."

To surpass KakaoTalk’s limits, the company plans to expand from a real-time communication-focused service to a lighter, non-purposeful interaction service where users can connect more casually. CEO Namgoong also announced plans to strengthen KakaoTalk’s advertising and commerce functions. Starting in the second half of the year, search and content ads will be introduced in interest-based Open Chat.