Kakao CEO Chung Shin-a speaks during the Korea Federation of Micro Enterprise's New Year greeting ceremony in Seoul in this Jan. 30 file photo. Korea Times photo by Lee Han-ho

Kakao is reaping the benefits of an aggressive expansion by AliExpress, Temu and Shein in Korea, as the Chinese e-commerce companies have paid handsome amounts of advertising fees to the Korean IT firm to introduce their products to local consumers, the company said Thursday.

During a conference call on first-quarter earnings, Kakao CEO Chung Shin-a attributed the increase in the company's revenue from its advertising business and its preemptive response to the growing needs of Chinese e-commerce platforms for marketing campaigns.

The IT firm's revenue from its ad business rose 10 percent year-on-year to 279 billion won ($204 million) during the first quarter, while its total first-quarter revenue reached 2 trillion won, up 22 percent from a year earlier. Its operating profit also soared 92 percent year-on-year to 120 billion won, as it had acquired SM Entertainment during the second quarter of 2023.

Chung added that Kakao will continue to pursue profits from Chinese e-commerce firms, although she maintained a cautious stance on a possible decline in advertising fees from Korean e-commerce companies.

The CEO also dismissed concerns over potential negative impacts of the Chinese e-commerce firms on Kakao's own commerce business.

"The growth of Kakao's commerce business is based on exchange of gifts between users," she said. "Those users are less sensitive to prices, and we also offer a differentiated lineup of gifts."

Considering ongoing investigations into alleged irregularities involving Kakao and its former and incumbent executives, Chung promised that the company will continue making efforts to reform its corporate governance structure.

"We will make our company's stock price-to-earnings ratio determine the size of payments to me and other executives," she said. "We will prioritize the enhancement of shareholder value."

The CEO also admitted that Kakao has failed to satisfy the market expectations for the launch of its artificial intelligence (AI) services. The company has delayed the launch of its large language model KoGPT 2.0, which was initially slated for the second half of last year.

"We will materialize our AI-related services as soon as possible," Chung said.

Earlier this month, Kakao decided to acquire Kakao Brain, its subsidiary specializing in AI technologies, with the aim of speeding up the launch of its AI service. In particular, the company plans to come up with services that can be used on its KakaoTalk mobile messenger app.

However, the CEO was wary of excessive investments in AI, saying that the company is well aware of the capital market's demand that its investments should not damage its financial soundness or profitability.