Kakao sheds Kakao Games… 2,338 employees cut, net profit down 90%: "One-time event"

Kakao's second-quarter financial results showed a stark contrast between appearance and reality. While revenue and operating profit reached "all-time highs," net profit plummeted by nearly 90%, and the number of consolidated employees dropped by over 2,300 within a year. The primary reason was Kakao Games. By excluding its gaming business from consolidation, Kakao simultaneously altered both its comparative baseline for financial results and its cost structure.

On the 6th, Kakao reported second-quarter consolidated revenue of 2 trillion 985 billion won and operating profit of 277 billion won. Operating profit rose 35.9% year-on-year, setting a new quarterly record high. The operating profit margin also climbed to 13.2%.

In contrast, net attributable profit amounted to only 179.8 billion won, representing a sharp decline of 89.5% compared to the same period last year and 92.1% from the previous quarter. Despite the increase in operating profit, net profit shrank due to the inclusion of discontinued operations loss of 180.8 billion won and corporate income tax expense of 165.1 billion won under continuing operations.

At the center of the discontinued operations loss is Kakao Games. In March, Kakao Games decided on a 240 billion won third-party rights offering (paid-in capital increase) and a 60 billion won convertible bond issuance targeting LAA Investment, a special purpose entity under LINE Yahoo's group. Following the completion of the share purchase agreement execution, Kakao's stake in Kakao Games fell from 37.93% to 14.68%. The change in major shareholder was finalized on June 19.

During this process, Kakao Games was removed from Kakao's consolidated financial results. As a result, last year's second-quarter figures were also restated retrospectively. Under the original reporting standard, Kakao's revenue and operating profit for last year's second quarter were 2 trillion 283 billion won and 185.9 billion won, respectively. However, after classifying Kakao Games as discontinued operations, the comparative baseline was revised to revenue of 1.9175 trillion won and operating profit of 203.9 billion won. This year's second-quarter "all-time high operating profit" is thus a record achieved under continuing operations excluding the gaming business.

The reduction in employee count also coincides with this accounting change. As of the end of the second quarter, Kakao's consolidated workforce stood at 14,046 employees, down 2,338 from 16,384 in the same period last year. While the numbers suggest a large-scale layoff, Kakao's headquarters staff decreased by only 68, from 3,986 to 3,918 during the same period. In contrast, employees at subsidiaries fell by 2,270, from 12,398 to 11,128. This is largely attributed to changes in the consolidation scope, including the exclusion of Kakao Games.

From Kakao's perspective, this represents a positive change. By divesting Kakao Games, the operating profit margin improved. Kakao explained that cost efficiency increased through optimized workforce management and simplified corporate governance. The number of affiliated companies also decreased from 147 in May 2023 to 93 in May this year. Additionally, all shares in AXZ, the subsidiary that operated portal service Daum, were transferred to Upstage in May.

This financial performance can be viewed as an interim report card on Kakao's structural improvement efforts. Shedding non-core businesses improved the operating profit margin. However, restructuring costs were first reflected in the decline of net profit. Key points to watch in the second half include the KakaoTalk redesign and expansion of AI services. Whether Kakao can maintain the profitability gained through restructuring while also covering AI investment costs remains its next challenge.