Naver shines, Kakao struggles, a tale of diverging fortunes in South Korea’s tech scene

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In a tale of two tech giants, South Korea’s Naver and Kakao, both boasted record sales in 2023, but their profitability narratives couldn’t be more different. Naver, known for its internet portal, reported a stellar 17.6 percent year-on-year increase in sales, reaching a remarkable 9.67 trillion won (US$7.25 billion). Meanwhile, Kakao, operator of the popular mobile messenger KakaoTalk, also celebrated a record high, clocking in at 8.1 trillion won in sales.

The driving force behind their success? Both companies have seen significant growth in their content and e-commerce divisions, overshadowing their mainstay platform businesses. Naver’s commerce division saw a substantial 41.4 percent increase in revenue, reaching 2.54 trillion won, while its content division soared by 37.4 percent. On the other hand, Kakao’s content sales rose by 20.2 percent, driven largely by a staggering 92.9 percent revenue increase in its music unit.

Kakao’s music business, in particular, had a standout year, fueled by its acquisition of K-pop powerhouse SM Entertainment, a surge in demand for its music streaming platform, Melon. However, when it comes to profitability, Naver emerged as the clear winner. Naver reported a record operating profit of 1.49 trillion won, a 14.1 percent increase from the previous year, while Kakao’s operating profit fell for the second consecutive year to 501.9 billion won, about one-third of Naver’s 2023 operating profit.

Kakao attributed its declining profitability to investments in building its own data centers following a major service disruption in 2022 due to a fire at a data center operated by SK C&C, which hosted Kakao’s data servers at the time. Despite this setback, Kakao remains optimistic about its future profitability, with its fourth-quarter operating profit surging by 108.6 percent year-on-year to 189.2 billion won. The company expects its profitability to continue improving this year, citing a strong performance in its content and intellectual property divisions and a reduction in operating losses from new initiatives.

While Kakao has faced criticism in recent months over stock manipulation allegations involving its executives and alleged unfair business practices of its taxi-hailing service affiliate, Kakao Mobility Corp., the company remains focused on building a strong foundation for future growth. With plans to build another data center by 2026 and a commitment to enhancing profitability across all business units, Kakao is poised to navigate challenges and capitalize on opportunities in the dynamic tech landscape.

(Source: Yonhap)

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