Kao Corp Ord

Good morning and good evening. Thank you all for joining today. We'll now begin Kakao's Q3 2025 earnings conference call. This conference will start with a presentation followed by a divisional Q&A session. If you have a question, please press star 1, that is star and 1 on your phone during the Q&A. I will now turn it over to Kakao. Hello, I'm Jeffrey from Kakao IR. Let's begin with the third quarter 2025 earnings conference call. Today, I'm joined by Sheena Chung, the CEO, and Jayden Shin, the CFO. Please be reminded that the earning results are consolidated estimates under the KIFRS basis and are subject to change upon the auditor's review. Also, forward-looking estimates are based on assumptions, so actual results may differ from figures included in today's presentation. Now, we will have a presentation from CEO Shina Chang. Good morning. This is Shina, CEO of Kakao. Before going into the details of our third quarter results, let me first briefly touch on the KakaoTalk revamp that took place in September. As this was the largest revamp since KakaoTalks launched 15 years ago, users have shared a wide range of feedback. Kakao is carefully listening to those voices and will continue to make ongoing improvements, including the Friends tab revamp scheduled for the fourth quarter. At the same time, since Kakao's roots lies in messaging, we will also actively enhance the core messaging experience by gradually introducing many of the customized convenience features that users have long requested. First, we plan to further strengthen the custom folder feature, which allows users to organize numerous chat rooms within the chat tab according to purpose and view different types of conversations at a glance. Similar to the unread folder that has already been introduced, users will soon be able to categorize their chat room into various folders such as family or work according to their own needs. Within those folders, favorite rooms will be automatically sorted for easier access, providing a more comfortable and organized user experience. Also, we applied the AI summary service to the unread folder and are currently monitoring user reaction. Once its utility is verified, we plan to gradually expand it to additional areas. This service allows AI to summarize the vast number of messages exchanged across multiple chat rooms so that users can easily grasp the flow and key points of conversation across different chats without having to open each one individually, creating a far more efficient messaging environment. Through the remainder of this year and into 2026, Kakao will continue to humbly listen to user feedback, striving to find the right balance between preserving the stability of the existing service experience and driving platform innovation that fuels sustainable business growth. Next, I'd like to talk about AI, another key pillar driving Kakao's growth. Last quarter, Kakao announced its vision of AI for everyone with the goal of enabling all users in Korea to experience AI seamlessly within Kakao Talk. As a result of these efforts, we are proud to introduce two significant milestones in October. The one on-device AI service, Kanana in Talk, and ChatGPT for Kakao, jointly developed with OpenAI. Over the past year, Kakao has transformed its organizational work structure into an AI studio designed to encourage diverse experimentation. Small, agile teams now build MVPs, rapidly validate user feedback and market potential, and continuously experiment with new AI services. Last week, we launched ChatGPT for Kakao, a powerful integration between Korea's most dominant messenger platform and the world's most widely used AI service. Located directly within KakaoTalk's Ted Chat, where millions of users engage multiple times a day, ChatGPT for Kakao offers unmatched accessibility, allowing anyone to use it quickly and easily. This service is powered by the GPT-5 model, and as ChatGPT models are updated in the future, those upgrades will be applied simultaneously, ensuring that users can always experience the latest version of ChatGPT within KakaoTalk. ChatGPT for Kakao is deeply integrated into the chat experience. Whenever a user has a question during a conversation, they can instantly ask ChatGPT and share its response directly within the chat room. In addition, through Kakao's preparatory agent Kakao Tools, users can connect seamlessly to a wide range of Kakao services and perform desired actions immediately, without complex menu navigations or switching between apps, offering a truly integrated agent experience. Although still in its early stage, Tutsi TT for Kakao has already shown strong momentum, with cumulative user numbers rising rapidly. The average number of messages sent per active user and overall time spent within the service are also clearly trending upwards. As KakaoTool becomes connected to more services, we expect AI experience in users' daily lives to expand further, leading to a greater use of user engagement and longer time spent within KakaoTalk. Kakao's ultimate goal for its AI services is to realize agentic AI, an autonomous and proactive intelligence that can set its own goals, plan ahead, and act flexibly based on context and circumstances. While a conventional AI is a unit-type artificial intelligence designed to precisely carry out a single goal or task, agentic AI can precisely understand users' intent within context, combine multiple agents to determine the best path towards achieving higher-level objectives, and make its own decision to act accordingly. This year, Kakao took its first important step towards realizing this vision of agent AI. To begin with, Kakao has established two key services touchpoints, Kanala in Talk and TTP for Kakao, that enable accurate understanding of user intent within conversational context. KakaoTalk already holds a uniquely rich conversational data set that no other platform can replicate. Command Line Talk, powered by Kakao's on-device AI model, can proactively understand users' needs in the safest possible way and suggest relevant information or actions even before being explicitly asked. Meanwhile, through ChatGTP for Kakao, users can directly request information or actions from the AI agent whenever they need to. Next year, Kakao will continue expanding those touchpoints between users and agents, introducing additional services such as Kanana Search, which will further enhance our ability to understand user intent and context. As explained earlier, once user intent is identified across various service touchpoints, Numerous specialized agents, each with its own area of expertise, communicate and collaborate to perform the necessary actions to fulfill users' needs. For this reason, the active participation of agents specialized in different verticals within the ecosystem represents another key pillar in building agentic AI. The Kakao tools introduced alongside last week's launch of ChatGPT for Kakao represents an early form of Kakao's AI agent. Currently, agents from Kakao Map, Kakao Gift, and Melon are already integrated, and we plan to expand connections to key B2C verticals within the group, such as finance and mobility, in the near future. Furthermore, through PlayMCP and Agent Builder, Kakao is establishing an open platform for AI agents and technological foundation that allows anyone, regardless of size or capability, to participate in the agentic AI ecosystem under Kakao's trusted authentication and security framework. Building on this foundation, starting next year, We plan to rapidly expand the AI ecosystem by connecting a diverse range of external tools and agents beyond the Kakao group. We take great pride in being ahead of anyone else in realizing agentic AI. As mentioned last quarter, we are moving beyond a time when users had to search for apps and navigate complex menus. We expect a rapid shift to models where services are delivered and executed simply through conversations with agentic AI agents. Starting this quarter, Kakao will connect more users with a broader range of services, building agentic AI that enables users to accomplish tasks and complete actions through conversations alone. Once users experience this level of convenience, It will become an irreversible way of interacting with services. Though we are still in the early stages, we will advance step by step and firmly establish Kakao as Korea's leading growth company in the AI era.

Thank you. Thank you. Thank you.

next jayden lcfo will present the third quarter 2025 financial highlights in the third quarter cacao recorded its highest ever quarterly revenue for two consecutive quarters driven by continued solid growth in the platform segment and better than expected performance in the content segment furthermore we are delivering on our commitment to achieve growth worthy of a true growth stock with consolidated revenue growth to around 9% for the first time in six quarters. In line with this momentum, operating profits surpassed $200 billion for the first time ever, driven by group-wide efforts to enhance operational efficiency and accelerated top-line growth, bringing our operating margin to 10%, the highest level in four years. Now moving on to our revenue for this quarter, Consolidated revenue for the third quarter was 2 trillion 86 billion won, up 9% YOY and 3% QQ. Platform revenue for the third quarter was 1 trillion 59.8 billion won, growing 12% YOY and remaining at a similar level QQ. First, Kakao's core business, TalkBiz, recorded 534 billion won, up 7% YOY, but down 1% QQ. Under top biz advertising, business messaging continued its strong momentum while display ads, which had been sluggish, rebounded resulting in revenue of 325.4 billion won, up 11% YOY and 1% QQ. Business messaging revenue grew 22% YOY achieving another record high quarterly revenue following last quarter as we continue to expand the range of message formats available for advertisers, particularly in the financial sector. And as KakaoTalk was widely utilized as a major marketing channel for local incentive programs led by the government, which drove a notable increase in message volume, we believe Business messaging has now entered a virtuous growth cycle as not only the number of advertisers is increasing meaningfully, but existing advertisers, having experienced the efficiency of message ads, are also significantly expanding their message volumes. Accordingly, we expect the strong growth trend of business messaging to continue into next year rather than being a one-off in the third quarter. Meanwhile, display ad revenue posted a meaningful turnaround, returning to growth for the first time in five quarters, despite the third quarter being a seasonally weak period. This was driven by enhancements to the competitiveness of existing ad inventory and diversification of ad products within KakaoTalk. Total commerce GMV reached 2.5 trillion won, up 4% YOY and 1% QOQ. Revenue came in at 208.7 billion won, remaining similar YOY but decreasing 6% QOQ. Talk gift GMV increased 1% YOY despite the Chuseok holidays. a seasonal peak happening in October this year, shifting the seasonal effect from the third quarter to the fourth. Additionally, as some orders placed at the end of September were delivered and recognized in October, revenue recognition was also affected. In the fourth quarter, we expect both GMB and revenue growth to accelerate again, reflecting deferred transactions from the third quarter and additional boost from year-end seasonality. Meanwhile, self-purchases, the new growth driver of Talkgift, maintained solid growth. In the third quarter, we strengthened promotions by introducing exclusive product lineups and new items from popular brands for the first time. As a result, the number of self-purchase users increased 19% YOY and self-purchase GMV rose 40% YOY. As the share of self-purchase GMV continues to rise meaningfully within TalkGift, we will continue to drive growth in commerce centered on the two growth pillars of stable gifting demand and expanding self-purchases. Moving on, portal revenue was $72.7 billion down 5% YOY and 7% QOQ. The portal business plans to complete the transfer of operations to the newly established subsidiary AXC by year end without delay, after which we will share more detailed strategic directions. Next, revenue for platform other was 452.7 billion won, up 24% YOY and 4% QOQ, mainly driven by solid performances from Kakao Mobility and Kakao Pay. In the third quarter, Kakao Mobility continued its model of growth of providing its platform and operational know-how to regional taxi operators, enabling them to operate their own franchise businesses. Also, Kakao Pay achieved its highest ever quarterly operating profit, driven by accelerated revenue growth from financial subsidiaries, including securities and insurance, as well as strong performance from data-driven platform services. Now moving on to the content segment, the consolidated revenue was $1,026.7 billion, up 5% YOY and 6% QQQ. The overall story business revenue of Kakao Entertainment and Pekoma recorded 211.4 billion won, down 3% both YOY and QQ. For Kakao Entertainment, they remain focused on maintaining its profitability-oriented management approach. Second, AMID intensified competition in Japan's comic market since last year, Pekoma has been leveraging its unique platform competitiveness to build a foundation for sustainable growth. This quarter, Pekoma strategically refrained from excessive marketing and instead focused on selective campaigns aimed during the summer vacation period, enhancing user engagement and spending within the platform. As a result, Pekoma achieved its highest ever quarterly revenue in yen maintained its position as the number one grossing app in Japan's app market year-to-date and nearly doubled its operating profit YOY. Secondly, the music revenue within the content division was 565.2 billion won, up 20% YOY and 9% QOQ. Solid performances by major artists coupled with growth from newer artists helped smooth quarterly activity fluctuations and drive consistent results. In addition, our music division strengthened project-based merchandise and offline pop-ups to expand fan experiences, thereby establishing a virtuous cycle in our IP business. Lastly, media revenue was $95.8 billion of 75% YOY and 2% QOQ. This growth was driven by the recognition of deferred works and higher production progress, resulting in a significant YOY increase from a low base while remaining at a similar level QQ. Wrapping up on our revenue, operating expenses for the third quarter were $1,878.5 billion of 5% YOY and 2% QQ. Labor cost was $477.4 billion, up 4% YOY, but down 2% QQ. The YOY increase was due to higher bonuses reflecting subsidiaries' first-half performance and higher employee-related costs, including social insurance, while the QQ decline reflects our continued conservative hiring stance across the group. Marketing expense was 101.8 billion won, down 3% YOY, but up 16% QQ as marketing activities expanded across subsidiaries. Marketing accounted for 5% of consolidated revenue, both in the quarter and cumulatively year-to-date, in line with our initial annual guidance within the 6% range. Revenue-linked costs were 747.7 billion won, similar YOY but up 4% QQ, reflecting higher settlement expenses linked to increased content revenue. The ratio of revenue-linked costs to consolidated revenue stood at 36%. Outsourcing and infrastructure costs totaled $260.7 billion of 34% YOY and 12% QQ, due to subsidiary account reclassifications from last year and higher infrastructure spending related to the launch of AI services. Depreciation and amortization expenses were 208.3 billion won, down 1% YOY and 6% QQ. The YOY decline reflects partial reversal of bad debt expenses while the QQ decrease is due to the high base from content license amortization at Kakao Entertainment in the previous quarter. Overall, consolidated operating profit for the third quarter was $208 billion, with an operating margin of 10%, improving by 3 percentage points YOY. Going forward, we will continue to pursue structural improvement and profitability based on an optimized cost structure. Non-operating income for the third quarter was 46.6 billion won of 41.4 billion YOY and 37.6 billion QOQ. The YOY improvement was mainly due to the base effect from one-off bad debt expenses at Kakao Pay last year and reduced interest expenses following the repayment of exchangeable bonds. Equity method gains were 19.6 billion won, similar to both the previous quarter and the same period last year. Corporate income tax for the third quarter was 61.8 billion won, and consolidated net income was 192.9 billion won. Lastly, CAPEX totaled 178.4 billion won, including 144.1 billion won for tangible assets and 34.3 billion for intangible assets. CAPEX increased 89.8 billion YOY and 78.9 billion QQ mainly due to new asset purchases by subsidiaries and expanded server investments required for KakaoTalk service operations. This ends the presentation on Q3 2025 earnings. We will now move on to Q&A. Because we have limited time, please be asked that you refrain from asking more than two questions.