Quarterly results and the advertising engine
Kakao closed the quarter with operating profit of 240.3 billion won, up 7% year on year, according to The Korea Herald. Revenue rose 6% to 2.09 trillion won. However, the figure marks a 13% decline from the previous quarter's record high, an element that places the result on a trajectory of annual growth but sequential normalization.
Advertising revenue is the main driver of the improvement. KakaoTalk, the most widely used messaging app in South Korea, recorded 49.7 million monthly active users in the country, up just 0.4% year on year. Despite the near-flat growth of the user base, display advertising revenue rose 35%: the source attributes the figure to new ad formats, which are said to have attracted small businesses and prompted existing advertisers to increase spending.
The broader advertising and subscription segment grew 11%, while commerce posted revenue of 241.3 billion won, up 16%. Kakao says purchases for personal use account for about 30% of the value of goods transactions on KakaoTalk's shopping services. Platform revenue rose 17% to 1.24 trillion won, supported by advertising, commerce, mobility and payments.
The AI bet and the division's costs
Kakao intends to leverage artificial intelligence to generate new advertising from its user base, in particular by identifying purchase intent without the user carrying out an explicit search. CEO Chung Shin-a said during Thursday's earnings call that, unlike traditional search advertising, AI services can identify user intent without an explicit search and recommend relevant products or services at the right moment.
The company expects AI-based advertising to contribute to revenue growth starting in 2027. The plan calls for completing the infrastructure for personalized recommendations by the first quarter and launching tests of AI Crew in December, an assistant designed to help businesses manage advertising campaigns. CFO Shin Jong-hwan said Kakao expects the AI business to approach break-even in 2028, thanks to revenue growth and cost reductions.
The figures show, however, that the standalone AI division remains loss-making: in the third quarter it posted an operating loss of 64 billion won, worsening from 46 billion won a year earlier. To contain costs, Kakao plans to process simpler AI tasks directly on users' devices, use its own models and rent GPU computing capacity instead of making large initial hardware investments.
Share buyback and outlook
Alongside its AI strategy, Kakao announced a plan to buy back and cancel 150 billion won of shares, equivalent to about $112 million, aimed at increasing shareholder value. Chung clarified that the shares will be bought back and cancelled immediately after acquisition. In a separate regulatory filing, the company said it will acquire and cancel 5,154,639 shares, in a transaction running from Friday to February 5, 2027.
On the content side, revenue fell 6% to 851.7 billion won, including a 15% decline at Piccoma, Kakao's Japanese digital comics platform. The company confirmed its full-year targets: revenue growth of at least 10% and an operating margin of 10%. It remains to be seen in the coming quarters whether AI's contribution to advertising will arrive on the indicated timeline and whether the cost-containment plan will be sufficient to reduce the AI division's losses.
