Mayor of Riyadh, Saudi Arabia's capital, shakes hands with a robot at Naver's 1784 headquarters in Seongnam, Gyeonggi Province, Oct. 8. Courtesy of Naver
The outlook for third-quarter earnings of Korea's leading internet service providers, Naver and Kakao, is going in opposite directions.
While Naver is expected to post a new high in its earnings for the July to September period due to expansions in search platform and commerce businesses, Kakao is anticipated to slow down due to declining performance in its content businesses.
According to market tracker FnGuide, brokerages' consensus on Naver's operating profit for the third quarter is 491.7 billion won ($362.64 million), up 29.3 percent from a year earlier. Sales are expected to reach 2.66 trillion won, growing by 8.9 percent during the same period.
If the company announces similar numbers during its earnings call slated for later this month, Naver will be able to set new highs in its quarterly earnings just three months after it set records at 472.7 billion won and 2.61 trillion won in operating profit and sales, respectively, in the second quarter.
Naver's rise is attributable to the positive results from the integration of artificial intelligence (AI) into its search platform business, the company's core business. Its commerce business is also anticipated to post a growth, contributing to the overall improvements.
"The search platform is seeing (an increase in) advertising revenue due to an (improved) access of personalized content," SK Securities analyst Nam Hyo-ji said, citing the anticipated growth in the revenues from search advertising and display advertising.
"By applying AI technology across its services, Naver's user experience is improving, which is expected to increase business revenue. Introduction of personalized content and enhanced user targeting is positively affecting its advertising revenue."
Buoyed by the solid earnings, Naver is now making its entry into the global market with its AI services.
Last month, Naver announced that it signed an initial agreement with Saudi Arabia's AI agency to jointly develop an Arabic language-based large language model, and the company will set up a Middle East headquarters, tentatively called Naver Arabia.
A citizen walks past Kakao's office in Seongnam, Gyeonggi Province, July 23. Yonhap
On the other hand, mobile messenger giant Kakao is presumed to post sluggish numbers for the third quarter.
Brokerages assume that the company's operating profit will stand at 130.1 billion won, down 7.3 percent from a year earlier. Sales are also projected to inch down by 5.4 percent to 2.04 trillion won during the same period.
A slowdown in content business is blamed for Kakao's backpedaling.
"We expect a 10.6 percent year-on-year decline in the revenue from content business," Sangsangin Investment & Securities analyst Choi Seung-ho said. "As the struggles in Kakao's gaming sector continue, its webtoon service has lost its top position to Line Manga. Additionally, the number of media productions is expected to decline in the second half of the year, leading to poor performance across all business divisions."
With its founder and leader Kim Beom-su being absent due to the prosecution's investigation of his alleged involvement in stock rigging, Kakao is now streamlining its corporate structure, exiting from noncore businesses.
Kakao CEO Chung Shin-a said in August that the company's core businesses were messenger services and AI. However, the company has yet to present its own business model for AI services, while its rivals are already devising monetizing strategies for their AI services.
"Kakao has started classifying its divisions into core and noncore businesses and reduced the number of affiliates from 144 to 123, signaling that its downsizing is picking up speed," Choi said, citing Kakao's recent sale of subsidiary Senatech.
"While this scaling down seems inevitable, there will be growing calls for clarity on how the proceeds from these sales will be used moving forward."