Kakao Corp. (A035720) Earnings Call Transcript & Summary

[Interpreted] Good morning. I am Eleanor from Kakao's IR team. Let's begin Kakao's Second Quarter 2020 Earnings Release Call. With me today are our CEO Mason Yeo; and Chief Investment Officer, Jae-Hyun Bae. Please be reminded that the earnings results are consolidated estimates under the K-IFRS basis and are subject to change upon the auditor's review. Let me invite Mason for key business highlights.

Good morning. This is Mason, and thank you for joining our earnings release today. Second quarter was a period of getting used to and embracing many changes in our daily lives, changes which were completely foreign to us all. In the face of the crisis and opportunities, Kakao and its affiliates did not let lose their vigilance and responded fiercely in all of our business areas, and therefore, we're able to achieve highest profit for 6 consecutive quarters. Under the norms of the so-called new normal, people have expressed quite a bit of interest in anticipation for Kakao's future. Celebrating 10-year anniversary of Kakao Talk, we, at Kakao, are looking back at things that are still left to be done rather than resting on our achievements under the campaign dubbed "Still for Kakao." Being aware that many aspects of our lives are still left untapped, that there's more to be realized, we wish to embark in season 2, a new mission for the company, which is a better world created together through technology and people with an intent to redefine Kakao's raison d'être. We will not simply pursue platform growth, but move towards a quantum growth so that we may grow together with our users and partners through our technology and influence. With this in mind, I would like to thank our investors for your support and Kakao crew for their passion and endeavors. Let me begin with our platform business. Kakao Talk's global user base surpassed 52 million in the second quarter. Domestic DAU, daily active users, was up by more than 9% on quarter, with message traffic volume expanding 34% year-on-year, attesting to higher user engagement vis-à-vis the platform with the pandemic becoming part of people's daily lives. User activity for sharp tab further increased in Q2 where number of visits per user was up 28% year-on-year, with sharp news user number breaking historical records as we witnessed content consumption on the Kakao Talk platform become a habit for users. We also see gaining popularity of media chat bots, which allow easy subscription to themes of preference in the Daum portal and sharp tab via the Kakao Talk Messenger. Of these, sports live streaming that uses the pro baseball bot and VOD consumption surged, which led to higher user satisfaction since people are unable to physically attend baseball games due to the pandemic. These segments will entail high user participation -- with which entail high user participation, excuse me, are expected to make greater business contribution going forward. Next is on the Talk Biz performances. Looking at the Talk business -- ad business, TalkBoard, which began CBT last May, in just 1 year onboarded 8,500 cumulative advertisers, becoming Korea's flagship premium performance ad product. With prolonged COVID-19, although the ad market is still suppressed, TalkBoard in June recorded highest monthly sales on budget increases by key strategic advertisers and continuous onboarding of new advertisers. We are now moving to expand TalkBoard's proven potential to other competitive segments within the Kakao platform. First attempt is with Kakao Bizboard, which is now featured from early August on Kakao's primary content platform, Kakao Page and Daum portal premium's segment and in the near future will officially launch against Kakao's major traffic. Recent trend of domestic ad industry pivoting around performance ads benefited Kakao as the first mover who launched performance ad platform back in 2017. The extension to Kakao Bizboard will help grow Kakao's share in the digital ad market as a mobile platform powerhouse. Such expansion to Kakao ad will also bolster Talk messenger-based transactional business. Due to total GMV of Kakao Commerce, which includes gift, Talk Store makers, was up 57% year-on-year. Gift is the primary service of Kakao Commerce where luxury cosmetics, immune-related health supplements and whole economy products are sent as gift deliveries, which have become popular among users. Last July, luxury cosmetic brands, i.e., Chanel Beauty came on board, and we will expand on users' choice by carrying even the hyper-luxury gifts. Thanks to the popularity of Talk Deal, which is a commerce product where people can discover good deals, Q2 Talk Store GMV was up 5x on year and a growing number of highly loyal users, number of transactions increased 7-fold year-on-year and posted 41 -- and posted 46% -- excuse me, 46% Q-on-Q growth, which is an explosive trend. We launched Makers, which is a build-to-order platform developed to relieve the inventory burden of vendors and its GMV was up 52% year-on-year with number of people making purchases increasing 31% on year and the number of vendor partners growing 49% year-over-year. As such, there is definitely an uptrend for both buyers and sellers. Behind the outstanding performance of Kakao Commerce lies the core value intrinsic to Kakao Commerce. The core value relates to the process of selling and buying good and original products eliminating inconveniences and hurdles to our daily lives, expanding user engagement based on such beneficial experiences and building a new commerce model through making technology investments. By offering differentiated product portfolio and in collaboration with the vendors, we will continue to support sound and meaningful commerce, connecting sellers and users. Next is on the Mobility business. Last July marked 5-year anniversary of Kakao Mobility services. Over the 5 years, Mobility went beyond simply connecting modes of transportation and evolved into a better and more convenient service that combined technologies, i.e. Big Data and AI. Thus, leading an innovative change, disrupting long-standing practices of the mobility industry. From a systems perspective by providing the mobility platform incorporating wide range of technologies and Big Data, we helped forge trust between the taxi company and the drivers, laying the basis for eliminating the 50-year-old long practice of drivers having to turn over a portion of their earnings to the company. This allows for the adoption of the revision of the Passenger Transport Service Act last year, which sought to make monthly salary a mandatory obligation. Kakao Mobility's AI technology, supported by Big Data, is also helping to improve working environment for the drivers. And by using demand forecast technologies, we are able to provide real-time information on where demand for taxi rides are expected to be high so as to maximize the matchup between drivers and passengers. Kakao Mobility T Blue is also taking off very quickly with a total of 9,800 number of taxis in the franchise fleet. We plan to broaden the scope of choice to meet user mobility-related demand. As Kakao Mobility technology and its impact spreads more widely, we expect welfare betterment for taxi drivers to whom we entrust our safety, which will in turn feed into a virtual cycle in creating a safer transportation for all. Next is on the Tech-Fin business. Kakaopay's Q2 GMV was up 31% year-on-year, coming in at KRW 14.8 trillion and KRW 29.1 trillion for the first half of the year. For online payment, Q2 GMV increased more than 67% year-on-year, continuing a high-growth trend while GMV for financial services driven by Money 2.0 brokerage accounts and popularity of fund services was up around threefold year-on-year and 49% Q-on-Q, accelerating the expansion of financial service business in just 1 quarter after the acquisition of the Kakaopay Securities. Since the launch of Money 2.0 account from February end, more than 1.7 million users opened accounts. And as of July, there were more than 3 million fund investments per month basis. We see higher usage rate for mobile and more than 60% are age group of 20s and 30s, who have relatively little experience in receiving services from security firms. Recently, we are also seeing steep growth in take up by people in their 40s and 50s as well. By lowering the entry barrier to investment for users who considered investing a difficult task, Kakaopay is quickly embedding investment culture as part of our daily life. Kakao Bank also pushed forward with its financial platform business, supported by brokerage accounts and credit card business, posting Q2 net profit of KRW 26.8 billion and KRW 45.3 billion on a cumulative basis, displaying a steep growth. As of Q2 end, number of Kakao Bank customers was 12,540,000 with monthly active usage rate of 94%, significantly higher than other banks, which is a key driver behind the power of the platform and partners' demand for alliances. Next is on the update for the Content business. Global platform GMV, which includes Korea for the paid content business, was up 24% on quarter and 72% on year, reporting KRW 173.1 billion for the second quarter. Kakao Japan's Piccoma GMV was up 61% Q-on-Q and 2.5x year-on-year, emerging as the primary platform in Japan, known to be one of our biggest market for content. Cumulative app downloads recently surpassed 23 million with new user inflow continuing. Daily GMV continues to break historical record with Piccoma taking the #1 position in nongame category from 2 main app markets in Japan. Kindling interest of publishers of previously subdued Japanese comic market, we've seen new titles increase from 1,700 on average per month to more than 3,000 introductions in Q2. The efforts by Kakao Page to discover and invest into wide-ranging titles to own competitive IPs have now become a key engine for platform growth, both at home and abroad. Recent uptrend in Piccoma is supported by a strong IP of Kakao Page. And despite the fact that Korea's webtoon launch was only recent, it accounts for a significant portion of webtoon content revenue and growing in pace with Piccoma. Moreover, this would be the year when we see the biggest number of pieces rendered on the screen since the launch of the Kakao Page. We expect to see many new forms, i.e., feature films, drama and games off of individual IPs and by reaching out to bigger masses, we expect Kakao Page's value as an IP powerhouse to grow further. Lastly, on Kakao Games. Kakao Games is the first of Kakao and its affiliates to do an IPO. It submitted securities registration form on the 3rd and planning -- and is planning to complete the listing process within September. The most anticipated game to be launched in Korea this year is Elyon, a PC-based MMORPG title, which completed the second trial test drawing strong responses with people raving about the massive battle scenes and high level of immersiveness. There is an anticipation building ahead of the launch. Also mobile game, Guardian Tales, launched last July in 230 countries globally, achieved high ratings and became top ranking in markets around the world, attesting to Kakao Games' strength in publishing. Through the IPO, Kakao Games intends to contribute to the growth of Korea's game industry and showcase competitive gains at the global market so as to bring more growth in the future. To present the business highlights, Jae Bae will now present on Q2 financial results.

This is Jae. Allow me to now walk through our financial results. Despite the impact from COVID-19, as the business sustained the growth, Q2 consolidated operating revenue was up 10% Q-on-Q and 30% year-on-year, reporting KRW 952.9 billion. Firstly, Platform revenue was up 12% on the quarter and 51% year-on-year to KRW 492.7 billion. In more detail, Talk Biz revenue was up 11% Q-on-Q and 79% year-on-year, reporting KRW 248.4 billion on higher Kakao Bizboard revenue and robust revenue growth and transactions under commerce. Portal Biz revenue felt a more direct impact from the pandemic into the second quarter, with its growth reporting 1% on quarter, but down 14% year-on-year, coming in at KRW 117.5 billion. A new top line growth for mobility and expanded financial services from Kakaopay, Q2 new business revenue was up 26% Q-on-Q and 149% on year to KRW 126.8 billion. Next, Content revenue was up 8% Q-on-Q and 13% year-on-year to KRW 460.2 billion. On robust growth from mobile games, including Moonlight Sculptor, game content revenue was up 11% Q-on-Q and 9% year-on-year to KRW 107.5 billion. With Melon paying subscribers reporting net addition of 60,000 on quarter with total moving to 5.13 million and Kakao M's Digital Music distribution revenue continuing an uptrend, music content revenue was up 0.2% Q-on-Q and 4% year-on-year, coming in at KRW 151.1 billion. An explosive growth from Kakao Japan leading to higher global GMV and value enhancement from Kakao Page's IP business, paid content revenue was up 23% on quarter and 46% year-on-year, reporting KRW 119 billion. Lastly, except for the Performance business, all of the business activities with Kakao M, including music distribution, film production, talent management solidly rebounded, posting a double-digit growth, both Q-on-Q and year-over-year. However, Kakao IX felt the impact of COVID-19 pandemic as its off-line revenue from retail outlets account for quite a bit of business, which led to a decline of IP business and other revenue by 1% Q-on-Q or was up 1% year-over-year, reporting KRW 82.7 billion. Next is on consolidated basis, operating expense and operating profit. Q2 consolidated operating expense was up 10% Q-on-Q and 23% year-on-year to KRW 855.1 billion for the labor cost on new hires for Kakao Enterprise and booking of the cost for XLGAMES and Kakaopay Securities, which were consolidated last March, labor cost recorded a 9% Q-on-Q rise. Also following acquisitions, which continued on from last year in an effort to secure engine for growth and on new hires, labor costs went up 36% year-on-year to KRW 216.5 billion. On revenue uptrend, ad agency and expenses to content partners increased with revenue-linked expenses increasing 7% Q-on-Q and 20% year-on-year to KRW 409.5 billion. As Kakao Mobility expanded into new businesses, commissions paid increased and a sustained rise in service traffic, infrastructure expenses also rose with outsourcing and infrastructure expense going up 16% Q-on-Q and 26% year-on-year to KRW 106.6 billion. Marketing expense was up 29% on quarter due to marketing activities for paid content business and mobility system -- mobility-related businesses. But versus last year, it declined 3%, coming in at KRW 38.5 billion on lower marketing expense for games. All in all, Q2 operating profit was up 11% Q-on-Q and 142% year-on-year, reporting KRW 97.8 billion, with operating margin at 10.3%. Next is on the nonoperating revenue and expense items. First, on increase in investment asset disposal one-off gains. Other revenue was up 363% Q-on-Q and 648% year-on-year to KRW 100.7 billion. Also due to the loss on disposition of investment stocks accounted in the equity method, other expense was up 53% Q-on-Q and 33% year-on-year, recording KRW 14.6 billion. Equity method gain was KRW 900 million in total, down 83% Q-on-Q and 92% year-on-year as a result of equity method gain of KRW 18.1 billion from Kakao Bank and others and equity method loss of KRW 17.2 billion. Q2 corporate income tax expense was KRW 58.9 billion with effective tax rate at 28.9%. Second quarter consolidated net profit reported KRW 145.2 billion. Last but not least, Q2 CapEx amounted to a total of KRW 62.4 billion including KRW 47 billion of tangible asset investment, including servers among others, and KRW 15.4 billion of intangible investments, i.e., IPRs. This ends the highlight of Q2 2020 earnings performance. We will be happy to entertain your questions now. [Operator Instructions]

The first question will be presented by Eric Cha from Goldman Sachs.

I would like to pose 2 questions. First is on your TalkBoard. Second quarter, I would like to understand what the ad impression level was? And how far do you think this is actually going to go up by the end of this year? Second question relates to your Talk Biz. Any update on the previously communicated target. Do you plan to adjust your target for this year? And for next year, what is your projection for growth? Although you won't be able to share with us any precise figure, what do you believe is going to be the driver behind the growth of Talk Biz, especially in relation to advertisement? What do you think is the growth driver? Is it actually increase in the impressions or increase in the unit price of that advertisement? Or are there any other factors like the inventory, increase in traffic and using other types of Kakao traffic on the platform?

This is Mason. I will be responding to the 2 questions that you submitted. The first on the impression or the fill rate on the TalkBoard; and second, on what our target is regarding the revenue for Talk Biz for '21 and the drivers behind the advertisement growth. Responding to your first question on the inventory side for the advertisement, if you look at the current usage level of the inventory, we're very flexible in modulating and adjusting. Basically, the amount of the usage rate based off of inventory as we monitor the demand by the advertisers and the performance that have been generated. We are currently using only a slight portion of the massive inventory that Kakao Talk chatting tab actually wields. We are, at this point, if we look at the continuously growing daily active users and the number of visits for the chatting tab, we think that the current level of inventory is quite sufficient. In terms of the advertisers, basically, with the increase in the advertisers spending more of their ad budget, Q1, as said, showed an uptrend. However, since Bizboard has become one of the most primary display ad product that really meets the digital ad-related demand of different advertisers, at this point, we feel that it is more important to actually maintain a very high level of conversion rate as opposed to increasing the price. Basically, we want to make sure that many advertisers can make use of the Bizboard and could gradually increase their budget. That will be our key focus. Now if you look at Kakao Talk Ad and Kakao Talk Commerce, which make up the overall top line revenue of Talk Biz, on a first half cumulative basis, it posted a growth of 78% year-on-year. Considering the fact that it was starting the second half of previous year, where we've seen the full Talk Biz revenue be reflected in the numbers, there is obviously going to be a base effect. Therefore, in the second half, we think that the growth rate may slightly be lower compared to the first half of the year. However, supported by a steep rise in the number of advertisers and also an improvement in efficiencies, we are achieving a quite solid result. And so we believe that we will be able to achieve that 50% guidance on Talk Biz. That is annual [ book ] guidance for Talk Biz, which we communicated previously. We believe that we can actually achieve that. So if you look at our plans going forward and outlook going forward, from the second half of the year, we're going to gradually expand the services where we will be exposing TalkBoard. So we will expand from the chatting tab of Kakao Talk. So we will -- you will now be able to see these TalkBoard type of a banner ad, not only under the chatting tab but also in premium service segment of Daum portal and Kakao Page. Going forward, we will -- we expect that we will be able to further broaden the scope of the Biz Board or TalkBoard into other different types of segments that's very close to people's daily lives. So it is -- in that sense, that we've decided to change the name from TalkBoard or Kakao Talk Bizboard to a Kakao Bizboard. So far, TalkBoard was a place that served the mega traffic segment where the advertisers could come in contact with mass number of Korean people. Whereas for Daum portal and DaumWebtoon and Kakao Page and Shop, these are additional services where we -- where the advertisers are able to really fine-tune and target people with a specific intent -- for people who have specific intent for visiting those segments. We believe that with the further expansion of Bizboard going forward, Kakao as a strong mobile platform provider will be faced with additional opportunity to further broaden its market share in the digital ad market.

The next question will be presented by Stanley Yang from JPMorgan.

I would like to ask you 2 questions. First is on the growth of your Talk Biz business, especially for the third quarter, you've just shared with us your plan to further expand on the inventory. What do you think is going to be the Q-on-Q growth rate for Q3? Second question is, looking at your operating profit margin and profit itself, [ the trend maybe for 6 months, the ] market consensus was already quite very much heightened. You've underperformed those expectations and -- whereas for top line revenue, it was higher than expected. But margin was quite low. And would like to understand because your labor cost posted an year-on-year growth of 36%, are there any one-off factors that slowed that increase because it seems quite large in terms of the size of the labor costs? And do you expect these high -- elevated labor cost trends to continue into Q3 and Q4? And of the previous target of achieving operating profit margin of 10%, you've already achieved that level. So any outlook in forecast in terms of our mid to long term, op margin for the second half of the year?

So this is Mason. I will respond to your question about the top line revenue and Jae will respond to that later. Now if you look at the first half top line revenue, there are actually 3 elements that we could get this -- that we could breakdown. First, in terms of the platform, the Talk Biz revenue underpinned by our key competitiveness that is intrinsic to Kakao, we were able to provide a complete circle of business solution that actually further expanded on the relationship with the business partners. And because our growth accelerated, we believe we could actually achieve the Talk Biz guidance, which we communicated last year. In other words, this year, we are targeting more than 50% Talk Biz revenue growth, and we do expect we'll be able to achieve KRW 1 trillion in revenue. Looking at Portal business. Last year, as we further upgraded Kakao Moment, we achieved 6% growth. But this year, due to the impact of COVID pandemic, we do think that the growth will be somewhat limited. In terms of the new business, revenue, there's been a significant growth. If you look at Kakaopay, that's really bolstering the financial services, including investment, insurance, loans and fund products. That's really supporting the new business revenue as well as the Kakao Mobility revenue, where we've been quite aggressive in expanding our new businesses for taxi services. As a result, we are expecting a double fold or twofold top line growth on a year-on-year basis. So as it was the case in the first half, we also expect, as we go into the second half of the year, [indiscernible] government, [ it would be a big ] support. We've seen good performance come out of our global endeavors. So if you look at our paid content revenue, we've seen a significant increase in the market share within the Japanese market through Piccoma services. And Kakao Page also expanded its services across China and Southeast Asia, really increasing the global influence that we have. And also the video IP-related or movie picture-related initiatives, which we actually have been preparing since last year, we think that there will be good performances come out of it starting this year. As a result, we will be able to continue a double-digit growth for our content revenue. Responding to your question on the labor costs, as of the second quarter, including the subsidiary and affiliates of the Kakaopay, we have a total headcount of 9,500. So this is 69 more people on a Q-on-Q basis. The reason why we've seen these increases is because of the hiring of developers for Kakao Enterprise as well as increase in headcount for our new businesses, Kakaopay and Mobility. And one of the biggest reasons why we've seen a significant increase in the second quarter is because of the inclusion of XLGAMES and Pay Securities, their labor cost has been reflected in this quarter on a full year basis. This year, Kakao is going to continue to secure highly talented individuals, mostly around developers. And also, we do expect there to be increase in headcount as an outcome of acquisitions and mergers as we are endeavoring to gain growth engine for our future businesses. So on a consolidated basis, in 2019, there was about 1,000 more people compared to the previous year, which is 2018. So for this year, we think that on an annual basis, there will be a similar level of headcount increase. Now in terms of the operating profit this year, most of our businesses posted a very fast growth rate, really improving our profitability and our platform's operating leverage in fact is also growing. For your information from our new businesses despite more marketing, basically, the operating loss from our new businesses has recorded the lowest level at KRW 18.4 billion since we started announcing a breakdown between old versus new in 2018. So we are on a smooth sail in terms of improving of our business performance. We still believe that there is ample room for Kakao to further increase its financial performance and profitability if we think about the capacity that Kakao has going forward. We've been achieving profit improvement over past 6 consecutive quarters, and we will endeavor to make sure that we continue to give momentum in the second half for a high top line revenue growth. And also in terms of the OP margin, we will do our best to make sure we can also maintain a double-digit level in the second half of the year.

The next question will be presented by Dong Hwan Oh from Samsung Securities.

I'd like to ask you 2 questions. I understand you turned -- you've turned around your Piccoma business this year. What was your operating profit for the second quarter? And is this trend going to continue? And when do you plan to go IPO with Piccoma? And the second question is, you've previously communicated that you will be launching [ top movies ] within this year, will that still be possible? And also, you've mentioned tentpole drama production. I'm wondering whether you are in discussions with other broadcasting houses or Netflix or any production regarding the production of tentpole and do you think that you'll be able to complete 3 to 4 such drama titles within the year and release them?

This is Jae responding to your question about Kakao Japan. If you look at the global platform GMV including Korea, [ it was 24% this quarter ], it was up 72% year-on-year, achieving KRW 173.1 billion. On a first half cumulative basis, basically, that figure was KRW 312.4 billion. The second -- in the second quarter, we've seen accelerated results from the global business, including Japan. So global GMV basically surpassed that of the domestic GMV. Internally, we're thinking that by 2021, the entire global GMV, including Korea, we have set the target to achieve more than KRW 1 trillion and also by 2020, excluding Korea, we are targeting only solely global GMV of about KRW 1 trillion. What's quite encouraging is that we are seeing such a significant increase in the top line revenues driven by global platform GMV. But at the same time, we are seeing the profit base for Kakao Page's IP ownership. So all in all, from a per annum basis, we do expect that the revenue growth is going to be higher than the GMV growth. Also in terms of profitability, despite spendings on marketing of the content investments in order to grow the size of the business, Kakao Page, we expect, is going to achieve about only 10% OP margin just as we did last year. And Kakao Japan also will be turning around into profit this year from recording [ a debit ] previous year and hence, will be able to support and contribute to overall operating profit improvement on Kakao. Regarding the IPO plan, we're at this point for the time being really focused on further improving business performance for Kakao Japan. And we're not particularly talking about any specific schedule relating to the IPO. Starting the fourth quarter of 2019, we have now -- we are now achieving quarterly profit. So for this year, we're very much focused on continuously growing the GMV side and also maintaining that operating profit trend so that we could -- going forward, by next year, we can really make significant or meaningful contribution to the consolidated profit.

This is Mason. To respond to your question about the tentpole drama production and any aspect related to that, basically, Kakao M starting the second half of the year is going to embark on different experiments and clearly showcasing our original digital content via the Kakao Talk platform. And so currently, we're under a preparation phase so that we can meet an official launching come next year. Currently, between the cooperation of Kakao and Kakao M, we are, at this point, trying to find out and explore what the most appropriate type of content distribution model will be like under Kakao platform. So at this point, many things are being discussed. And basically, the digital content that will be developed by Kakao M will be equipped with a user interface, or UX, that is mostly fitting a mobile environment. So it will provide a totally new type of content consumption and new experiences to the users so that we could really pioneer into the new content areas. At this point, there are a number of entertainment content that are being developed. For instance, Love Revolution, which is a webtoon comic title and original digital dramas and the different entertainment shows, including Begin Again, which is all led by producer Oh Yoon-Hwan studio that is run by producer Oh Yoon-Hwan. Now basically through these types of digital content, users will be able to enjoy more than 70 minutes of original entertainment content via Kakao M original digital content distribution. They will be able to enjoy that on the Kakao Talk platform. Through the original digital content produced by Kakao M, we'll be able to provide brand safety and also Kakao's targeting technology and seamless connection to commerce. This will be a good driver for our different business partners to show their interest. And so it will have a meaningful business value in terms of this business model. So going forward, we will be producing high-quality original digital data that can be served via multi-platform, and we believe that this will be a good diversified revenue source if we think about advertisement and also selling of the IP rights and also global expansion.

The next question will be presented by Soyun Shin from Crédit Suisse.

My first question relates to Kakaopay. We've seen a very quick rise on online transaction and also your performances from financial products were also quite good. When do you expect a turnaround for Kakaopay? And do you see also an upside to margins? Second question is, in the second quarter, it seems like you spent less marketing cost. I would like to understand where you're able to save that marketing spending. And if that 5% marketing spend against your revenue is still a valid contribution, then should we expect more elevated marketing spending in the second half of the year?

This is Jae. Responding to your question on the profitability aspect of Kakaopay, basically, in the second quarter due to the promotion activities on fund investment and opening of the accounts for Kakaopay Securities, we are still in the deficit. We have been recording a loss. But compared to the previous year, we've seen a significant reduction in the size of that loss. Kakaopay successfully turned around on a monthly basis last year. And also we were able to see the impact of the operational leverage impact of the financial platform. So as we go into the second half of the year, as we see more deposits being put in by the users as now the accounts -- or brokerage accounts and with the application of the open banking, overall cost structure has been enhanced. And so we think that we would be able to see some profitability come through, supported by growth of different financial products, especially increases in GMVs that are non-P2P transfer. At this point, more than 70% of Kakaopay users are multiservice users. They're not just using the service for P2P transfer purposes, but using it for other purposes as well. And also in light of the fact that now the accounts are real name-based and people can now deposit their money, we could expect a very quick transition of these users to the other types of financial services. So top line revenue for Kakaopay has been reporting a very steep rise. And basically, up until last year, most of the revenue sources were from payment, but starting first half of this year, we are now seeing it being diversified to other financial services, including sales -- including fund sales, including lending-related services and insurance sales. So we are seeing a lot of people actually experiencing financial services on top of the Kakaopay platform. As a result, we see that in the second quarter, the overall number of transactions for financial services has actually risen by tenfold on a year-over-year basis. We are seeing a lot of interest on asset management services coming from people in their 20s and 30s on Kakaopay. These are people who are starting to make investments with very small amounts of money. But we think that after in a couple of years, there's going to be more people with higher level of assets. And so we will be redefining the concept of VIP customers. They are now starting with a small amount and making an investment, but as people get used to paying taxes on the Kakao Talk platform, receiving zones and also subscribing to a simple insurance, we expect that they will be able to expand the services that they receive in [ development ], taking out an auto insurance, annuity insurance and even a lifelong insurance product. So in that aspect, we expect that there's going to be a significant increase in a per user GMV within this financial platform. Responding to your marketing spending-related question, we've seen an exclusive growth come out of Japan Piccoma in the first half of this year. And in order to further fuel that growth in the second half of the year, we are going to be quite -- or more aggressive in our marketing spending. Having said that, because our GMV is increasing solidly, we are certain we will be able to cover that marketing expense with our operating profit. So we do not expect our marketing spend to have any negative impact on our OP performance.

The next question would be presented by Jingu Kim from KTB Investment & Securities.

I would like to ask 2 questions. First on Kakao Mobility. Can you share with us what your mid- to long-term strategies are for each of your business lines, including driver-for-hire, taxi, et cetera? And if you can, can you also share with us some of your KPIs? Second question is on Kakao M. What is your business or BN target? And based on that business or BN, who are your competitive peers? And what are your long-term revenue and P&L targets?

Now for Kakao Mobility, in the second quarter, Mobility's top line revenue was up 50% Q-on-Q, and it increased 3x on a year-over-year basis, which is a quite high growth rate. Basically, we've seen increases in demand for premium taxis, including Kakao T Blue, T Venti, and we also conducted renewal on the luxury taxi segment. And also, there was good growth for B2B and Kakao Bike. And in the second quarter, despite the number lowered or decline in the number of calls due to COVID-19, basically, Kakao T Blue supply was expanded. And we've seen a sustained increase in number of calls by the users. So we were able to really see the viability of this business from a long-term perspective. Basically, the demand for premium taxis have actually gone up twofold on a year-over-year basis. And premium taxi call ratio, people calling premium taxis over Kakao T App has increased to 50% out of the total number of calls, but still the supply is short at this point. So the fulfillment rate is still less than 50%. So we plan to further increase supply. Kakao Mobility, thanks to the changes in the relevant laws, we now have the basis to provide innovative services and respond to demand for premium taxis. So we're going to continuously expand on the taxi lineup to include Smart Call to Kakao T Blue, luxury taxi Venti Black, et cetera. So currently, in Seoul and in main metropolitan areas, what we're doing is we are going to further upgrade our services by really analyzing the passenger experience by making use of the driver rating system for Kakao T Blue. Kakao T Blue actually uses Big Data and AI algorithms. We are going to continuously upgrade the logic behind that so that these taxes could operate more efficiently. We are also providing training to the drivers of Kakao T Blue so that we can further up-service quality and really develop our services to be a true premium service, that is a taxi of choice by -- becomes a taxi of choice by users. For the driver-for-hire business, we've conducted a marketing campaign using the current backdrop of untapped culture. And we are, therefore, very much responding to the rebound in demand that we have -- the rebound in demand since the COVID-19 pandemic. Basically, we introduced a more optimized pricing system using AI algorithms and so as a result, we've seen improvement on a Q-on-Q basis in terms of the completion rate and also quality. As a result, we have regained the level of GMV as well as sales to the level that was -- that we enjoyed before the COVID-19 pandemic. We're also increasing our geographical coverage to other smaller cities, and we will further improve our service quality and expand this quality enhancement to areas, including B2B and also premium drivers for hire. So this year, we expect that supported by the growth and also expansion into other taxi parking and B2B services, we will be able to gain new revenue sources. So our Mobility revenue is expected to be much more than 2x that of the previous year. There are initial costs that's going to be incurred for just training the drivers and doing promotions because taxi business is franchise-based business, but we think that as we go forward, we will be able to reduce the amount of operating loss, as we see more efficiencies being enjoyed and also more cost efficiencies from other types of spendings like insurance costs. And also because there's quite significant growth from other services within Kakao Mobile like Kakao T, like Parking, B2B and Bike, we expect that come next year, we will be able to turn around and report profit.

This is Mason. I will respond to your question on Kakao M. Kakao M is an unrivaled domestic #1 music investment and distribution player. And also, it has made investment into production and commerce companies, really bringing together top talent into one space, and it has enabled to build an infrastructure and system that is very much specialized in producing original video content. And also it has a very unique distribution model that is supported by a messenger. So this is a digital content model that is very innovative, even from a global perspective. So we do not have a certain domestic competitor or peer in mind when we are implementing our business. Although it's too early to share with us -- share with you what our mid- to long-term plans or objectives are, but we do expect that underpinned by the growth from the existing music business and also the growth of the entertainment business, we expect profitability to actually improve on a year basis.

We just have time for one last question. Any questions, please? The last question will be presented by Jong Hwa Sung from eBest Investment & Securities.

With the opening of the open banking introduced last December, we were expecting significant improvement in terms of your firm banking commissions that you pay. Because Kakaopay, as of 2018, reported a loss of KRW 100 billion, and we understand the tens of billions of commission that you're paying to the bank. But compared to what we had expected, because of the infrastructure and server-related issues, I understand that tech-fins are only migrating portion of their traffic to this open banking network. So I would like to understand the ratio of your P2P transfer transactions. How much has that been migrated to your open banking network? And what is the firm banking commission savings that you're gaining from that? And also, when will we be able to see your entire transaction be based off of that open banking network and what impact would that have when that time comes?

This is Jae responding to your question. Basically, just the introduction of open banking last December, except for financial institutions that one -- that are not part of this open banking initiative, we are applying open banking services to most of the financial institutions and we are expanding the application to our traffic gradually. As we've mentioned in the fourth quarter, in light of Kakaopay's massive amount of traffic volume, our priority is to make sure that there is service stability. So up until the end of this year, we're going to just gradually expand on the scope of application. And so together with open banking introduction and also Money 2.0, where we have converted the accounts to a brokerage account, the deposit trend is also quite positive. And we think that all of these elements are going to improve the cost structure of Kakaopay.

Thank you. That ends our second quarter 2020 earnings presentation. I would like to thank all of you for joining us today. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]