Kakao Corp. (A035720) Earnings Call Transcript & Summary

Good morning. This is Eleanor from Kakao CAC IR team. Let's begin Kakao's Q1 2022 Earnings Presentation. Before presenting the earnings, let me brief you on the organizational changes which happened in February. We established Corporate Alignment Center, or CAC, acknowledging the need for risk management across affiliates as well as to share growth and coexist with our stakeholders. Kakao the HQ entity will be led by NK as the CEO, and CAC will be in charge of coordinating and supporting strategic direction of the entire Kakao affiliate. With that said, with me today are CEO, NK of Kakao; and Jae Bae, Senior VP of CAC. Please note that the earnings results are consolidated estimates under the K-IFRS basis and are subject to change upon the auditor's review. Also, forward-looking estimates are based on assumptions, so actual results may differ from figures included in today's presentation. With that, I will invite our CEO, NK, who will run through Kakao HQs business highlights.

Hello. This is NK. Since today my first time as Kakao's CEO, why don't I start by talking about the new challenge and dream of Kakao. Before taking the CEO position, I thought long and hard about Kakao's way forward when I was the Head of Future Initiative Center. So today, I will explain how we plan to transform Kakao Talk, which is at the heart of the company. As you know, Kakao Talk is a real-time communication services. Users come and use Kakao Talk, dozens of time a day with a very clear objective. This works as a strength as well as a limitation at the same time. We have many other services to offer aside from chatting, but once the user finishes communicating with a user, the objective is satisfied, and they immediately leave the app. It's just like commuters rushing out of the subway station to arrive at office on time. Now, for us to overcome this limitation, we need a fundamental change and make Kakao Talk a service to be enjoyed more casually. For example, we are now working on revamping the profile, and I can think of many new concepts, ideas and business models that we could apply. One can look after their own pet character inside the profile or post messages on how draining the day at office was to which friends can send heart emojis and messages. Or we could create a scene where people can send help supplements and air refresheners as a gift. If you look at commerce, in particular, there is fierce competition in daily goods, especially on price. But gifts or even purchases made on preference and taste have much room for online penetration. We expect, therefore, such transition and service to lead to significant earnings in commerce and ads. So we plan to introduce elements to Kakao Talk Profile, friends and in-chat segments that can foster light-hearted and sympathetic interactions. As I just mentioned, this will be, for instance, if users can approach talk in a manner similar to casualty going out to meet up with friends after work, I believe Kakao Talk can evolve from being a real-time communication service to an interactive service, bound by no particular objectives. Another strength and a drawback for Kakao Talk is its strong friend base. Thanks to the network of friends and acquaintances, the chat platform connected 50 million smartphone users in Korea. But we need to have another way to expand into the so-called non-friend segment. To do that, we plan to redefine open chatting based on common interest for further activation. It will become a form of community of users who share the same interest and a place for them to come together and have fun. For instance, users listening to I love dive in Melon can get together in the open chatting, organically forming a community of fans. Actually, we basically provide a link button to people listening to I love dive on Melon. It can very simply be implemented. And actually, gamers of a guild playing Oden together has created a community which is running quite well. When users are better connected, current form of text-based communication will evolve into one that uses images and videos and we will be able to leap -- make a leap as a service that overcomes the limitations, inheriting Kakao Talk. We also hope to connect all communities, including Kakao and develop Kakao from Korea's platform service connecting friends to one that transcends that limit to expand to the global stage. Korean language-based smartphone users are 50 million. A mere 1% of the global user base of 5 billion. Kakao will transition from this 1% to 99%. We look forward to your support in our journey ahead. Well then, let's move on to the key highlights for Q1. First is the platform business. For the Talk Biz ad, on solid growth from this Board and Kakao Talk Channel, Q1 revenue was up 32% on year, driven by number of advertisers that have more than 100,000 channel friends and higher revenue per channel. Talk channel revenue was up 52% year-over-year. Number of advertisers, especially using Sync increased to 18,000, enabling advertisers to gain friends with ease and speed, which is driving activation of the talk channel ads. Underpinned by the virtual cycle created by Bizboard, Talk channel and Info talk, Kakao Bizboard revenue was up 17% on year. Bizboard had scalability and universality as it can easily expand to any services that generate traffic. Ad Solutions proven over the years through the Bizboard will also be offered to off-platform for another momentum for growth. Next is on the Talk Biz business. First, for Kakao Talk gift, despite high base effect last year saw Q1 GMV up 32%. Q1 delivery GMV was up 46% year-over-year, accounting for 43% of total gift GMV. Delivery is receiving good feedback from its loyal user base and on high average order size and profitability, we expect it will make greater contribution to GMV growth and profitability improvements for Kakao Talk Gift. Talk Store GMV was up 22% on year. On top of top deal-driven growth, through closer integration with Kakao Talk ads, Talk Store will evolve into one that plays a role as a sales channel and offer commerce solutions that can onboard and lock-in customers. Lastly, on top of existing commerce, which I gave to Talk Store makers and new services, including ZigZag and the [ Grip ] company, combined total GMV was up 32% year-on-year, reaching KRW 2.3 trillion. This year, we plan to generate synergies across many e-commerce services within Kakao and activate interactions between ads and commerce so that we may achieve 10 trillion annual combined GMV target mentioned in the previous earnings call. Next is on Q1 performance of key affiliates presented by Jae, SVP of CAC.

Hello, this is Jae Bae. I will begin with the story business. Kakao Piccoma has solidified its positioning as unrivaled #1 platform in Japan's digital cartoon market, widening the gap with the #2 player. The Piccoma Q1 GMV was up 41% year-on-year to KRW 214.6 billion and excluding the impact from [ VPN ], reported 43% year-on-year increase. This year, Piccoma will leverage 2 growth strategies underpinned by its performance from the app-based cartoon markets. First is strengthening the web services. Within Japan's digital manga industry, web-based market is double the size of the app-based market, equipped with solid content library and active marketing, Piccoma started to see activated inflow of new users into web cartoons and user performance in GMV both increased almost double year-over-year. With Piccoma making a full-fledged entrance into the web service segment, whose size is much bigger, we still believe Piccoma's platform has a big potential within the total cartoon market in Japan. Second is pioneering the new market. With the launch in France last March, we entered the European market, and we see uptrending user performance on the back of proven story IPs from Korea and Japan. Starting in the second quarter, we will engage in active marketing and source contents that cater to the preference of French people so as to tap into the experience of consuming digital comics in the French market where there is high potential for growth. Next is on Q1 performance of Kakao Entertainment. Kakao Entertainment's Q1 combined GMV of the story platform and IP distribution posted 38% year-on-year growth, reporting KRW 231 billion. In Q1, business proposal, which is in-house production of Kakao Pages Web Novel and Webtoon ranked #1 in viewership among programs in the same time slot. It's easier to take a proven IP from highly competitive Korean market to the global market. Basically, create story platform works as a testbed of original IPs. And Kakao Page last March posted a record high average spend per user supported by its strong IP library. Business proposed or ranked #1 in non-English drama segment on one of the global IT -- OTTs. Global popularity drove GMV of Kakao Entertainment story platform in many of the global markets on top of the domestic market. And thanks to the popularity of the drama, original soundtrack by Kakao Entertainment's music label, Flex M also received raving acceptance from fans around the world. I believe the success of this drama pretty well shows the blueprint for Kakao Entertainment way forward. The IP of business proposal showed its potential to cut across the content value chain from webnovel webtoons to screen and music through which the synergies were amplified. Going forward, we will leverage content from various domains built by Kakao Entertainment and the massive IP library to solidify the positioning as a global IP powerhouse. In music, on solid revenue from Melon and rise in global music revenue from K-Pop, growth trend has been steady. Just as Starship Entertainment's girl group, IVE, is receiving global spotlight, we will continue to explore global super IPs based on which we will activate communication with the fandom and communities worldwide and build on the IP's global influence. Also to strengthen our sourcing capacity for competitive content IPs in the global market, aside from Piccoma and Entertainment, we made strategic investments into Kadokawa 2 years ago in the amount of JPY16.2 billion with our holdings valued at JPY41.2 billion. Kadokawa produces and owns multifold content IPs, including manga and imagining games and recent release of Elden Ring developed by FromSoft, a 100% owned subsidiary of Kadokawa was a global success. And the company is expanding great influence over the global content industry. We are closely collaborating with Kadokawa and building out global IP alliance as we speak. Next is on mobility. In Q1, Kakao Mobility released new features through the TV and Kakao Navi recommending most optimal routes and services to users by combining database of mobility data with AI technology. Also last month, we introduced Kakao T Pet pilot service to deal with inconvenience experienced by people with pets in the blind spot -- who are in the blind spot of mobility. Kakao Mobility is making investment into future technologies to move beyond mobility. We are investing into digital twin, which will form the core basis for future of mobility by which we would be digitalizing spatial information of the real world so that we can lead the transition to mobility of service and objects powered by AI. In addition, this year, will signal a beginning of a full-fledged global expansion. We're looking for solutions and ways to have people use local mobility services in 120 countries by using just the Kakao T app and connect to support services of global mobility companies to assist foreign visitors. Next, Kakao Pay, saw TPV increase across on- and off-line payment services and of the financial services, non-brokerage TPV posted salient growth driving Q1 TPV up 20% year-on-year to KRW 27.2 trillion. Kakao Pay officially launched MTS through Kakao Pay Securities on April and gained approval in digital non-life insurance business as it focuses on digital innovation across all areas of financial services. Also, by strengthening on and off-line payment infrastructure, it is fast preparing for solid growth in the post-COVID era. Lastly, Kakao Games. Kakao Games reported strong performance from Taiwan on Oden's release, building up expectations for global expansion. Going forward, in-house developed titles will go global and new AAA titles are lined up for launch, and we expect there will be clear growth in top line and profit. Also, with the rebranding of Bora 2.0 in Q1, we will carry on with blockchain platform business and secure a growth engine for the future. Now Q1 financial highlights. Q1 consolidated operating revenue was KRW 1,631.7 billion, down 8% Q-on-Q and up 30% year-over-year. Platform revenue was down 12% Q-on-Q and up 27% year-on-year, reporting KRW 886 billion. Talk Biz revenue was down 3% Q-on-Q and up 23% year-on-year to KRW 461 billion, while ad revenue was impacted by macro backdrop and slow seasonality, which drove revenue down Q-on-Q for major ad products. Talk Biz commerce revenue was flat Q-on-Q driven by user inflow for Talk Gift and expanded product lineup for delivery, which led to higher sales per basket. On the back of slow seasonality and slower-than-expected ad market, Portal Biz revenue was down 13% Q-on-Q and 3% year-over-year, reporting KRW 114 billion. On slow seasonality for pay and mobility and base effect from one-off revenue in Q4, Platform and other revenue was down 22% Q-on-Q, but driven by steady earnings expansion from Mobility and Kakao Pay revenue was up 52% year-over-year, reporting KRW 311 billion. Content revenue was down 2% Q-on-Q and up 36% year-on-year, recording KRW 765.7 billion. For the game revenue, due to limited impact from mobile game Oden, Taiwan launched on March 29 and decline in domestic mobile game revenue, there was 11% Q-on-Q decline with revenue posting KRW 245.8 billion. On Y-o-Y basis, there was 89% increase following Oden's release in June last year. Due to the COVID pandemic, concert business revenue fell while global distribution revenue sustained and uptrend underpinned by solid revenue from Melon platform and aggressive sourcing of music content undertaken to respond to globalization of K-pop music, music revenue, hence was flat Q-on-Q, while it was up 11% Y-o-Y to report KRW 204.4 billion. Platform GMV was up triggered by popularity of this proposal in domestic in North America and with new lineup from Piccoma, story revenue broke record, record high quarterly revenue, posting 13% increase Q-on-Q and 38% year-on-year, reporting KRW 240.5 billion, Lastly, Media revenue came in at KRW 75 billion. And due to the large fluctuation in revenue, depending on the timing of production and activities of artists, there was decline in production and management revenue, bringing media revenue down 16% Q-o-Q and up 3% Y-o-Y. Next is consolidated basis operating expense and profit. Q1 consolidated operating expense was down 11% Q-on-Q and up 36% Y-o-Y to KRW 1,493 billion. Key expense items include labor costs on the back of base effect from bonus payments last quarter and decline in stock-based compensation fell 19% Q-on-Q. And on headcount and wage increase, it increased 43% year-on-year to KRW 420 billion. Our decline in revenue-linked commissions for ads, games and media revenue-linked expense was down 10% Q-on-Q to KRW 584.4 billion. The increase in story and game content revenue drove our market and content commissions posting 19% year-over-year rise. On the back of lower infrastructure and mobility related commissions paid, outsource and infra expense was down 12% Q-on-Q and on higher commissions for mobilities Taxi, there was 42% year-on-year increase to KRW 204.6 billion. We saw global marketing expense increase on the back of Oden's Taiwan launch and Piccoma's service launch in France, while marketing spend for other businesses fell, bringing marketing expense down 11% Q-on-Q and up 70% Y-o-Y to KRW 114.6 billion. Marketing spend against revenue was 6.9%. An increase in depreciation and amortization and rise in depreciation expense on these assets, depreciation expense was up 9% Q-on-Q and 65% Y-o-Y to KRW 130.8 billion. All in all, Q1 operating profit was KRW 158.7 billion, with OPM margin at 9.6%. Next is non-operating revenue and expense. With the change into Dunamu's management control and reclassification of account, there was large sum of disposition gains from equity method shares amounting to KRW 1,665.3 billion in other revenue. On the back of disposition loss from tangible assets related to lease asset, other expense was KRW 48.4 billion. Financial revenue reported KRW 68.5 billion on dividend from SKT and Dunamu and interest income and financial expense reported KRW 94.7 billion on financial expense from non-controlling shares and interest expense. Equity method gain reported KRW 45.5 billion on profit from Kakao Bank Dunamu that are subject to equity method treatment, equity method loss was KRW 35.2 billion on the back of losses from companies subject to equity method. Q1 corporate income tax was KRW 438.8 billion, and consolidated net profit was KRW 1,328 billion. Lastly, CapEx investment breakdown includes server and tangible asset investment of KRW 64.8 billion and intangible asset, including IPR of KRW 39.7 billion, amounting to a total of KRW 104.5 billion in investment activities. Lastly, on Kakao's ESG update. We believe sustainability of our society and that of Kakao must go hand-in-hand. We have our partners grow together -- to have our partners grow together with Kakao and its affiliates, we will be using KRW 300 billion satisfied for the co-existence fund for the coming 5 years. Also, in order to implement barrier-free initiative for the benefit of better digital accessibility for the disabled and the age as an IT company for the first time in Korea, we appointed a person in charge of digital accessibility. Most recently, we committed to active Green initiative to live up to our role in solving environmental issues. Our objective is to go beyond simply reducing our own carbon emissions, but contribute sustainability of the greater society through various services that Kakao offers and achieve net zero by 2040. We look forward to your interest and support as we embark on a challenge of making a better world. Thank you.

[Operator Instructions]

[Operator Instructions] The first question will be provided by Stanley Yang from JPMorgan.

I would like to first congratulate NK for taking the office as the CEO. I understand that you have announced that your efforts will be focused on recovering the stock price of Kakao to KRW 150,000. And I think that a key enhancement in corporate value will be required. What have you said as a key KPI for this endeavor? Second question is Q1 Talk Biz revenue growth was 23% and compared to the guidance of 42%. I think it's significantly underperformed. And I would think that, that sluggishness is due to the external environment. I would like to understand whether you have plans to adjust hence the guidance?

So I guess I keep getting this question about the KRW 150,000 share price, and I think it'll be helpful if I could explain the backdrop to this. Whenever I became a CEO of a company, whether it was the Head of CJ or WeMade, I've always made the decision to personally purchase the shares of the company. At that time, when -- at the timing of purchasing the Kakao shares at the beginning of the year, what happened was that I actually exercised the stock options that I had in my ownership. And I had to pay the taxes, and I actually used up all the cash that I had in my possession, and I paid taxes. And at that time, after exercising my stock option right, I was advised by especially the IR team that I -- that there should not be any additional sales into the market of the shares that I held. And I had to continuously hold on to my holdings. And because I had no cash, I was unable to make any additional purchases. And hence, because I was unable to make any personal purchases of the shares, I thought that I needed to find another way to motivate myself, and that was the background to which I have communicated that I will focus on recovering the share price to KRW 150,000. And I believe, as we continue to implement a successful service revamping as well as global expansion, we will be able to recover corporate value of Kakao to above and beyond the KRW 150,000 share price level. And I will do my best to bring that -- to achieve that in the not-too-distant future.

This is Jae. Responding to your question about our advertisement revenue guidance. It is true that there was a slow seasonality impact from Q1 as well as on the back of rate hikes and the geopolitical war that is ongoing uncertainties have been heightened. And hence, overall economic cycle was very sluggish. That is true. As we enter into Q2 and with the reopening of the economies, we are seeing recovery of marketing demand from segments, including beauty, fashion and travel. But I do admit that the overall operational backdrop is quite unfavorable compared to when we first set up our beginning of the year business plan. Now having said that, there are some positives as well. If you look at our partners, they are actually increasing the budget. They're setting aside for use on the Kakao platform. And also, there's a lot of preparations that's ongoing to further bring and improved scale or improve -- bring improvement on the Talk ad product. And all of these efforts were undertaken in the first half of the year. And with that effort, we believe that the fundamentals are becoming much more stronger. And also, considering the fundamentals of the Kakao Talk ad and its growth potential is still quite solid. We believe that once the advertisement economic cycle recovers, we will be able to resume a very steep growth. In terms of the annual guidance for revenue and operating profit, this year, we expect a very balanced growth from our platform business as well as our content business, and we will be securing new growth momentum for -- through our new businesses as well. It is true that there was some negative macro environmental backdrop, and that had negatively impacted many companies. And that actually is one of the reasons behind the sluggish performance we've seen in Q1. From a short-term perspective, these external factors may slow down the growth of our business. But because the overall competitiveness of our business as a whole is strengthening, we expect, we will be able to continue on with solid growth. And also through a very aggressive global expansion for our content business, we expect our overseas revenue to actually go up by more than 40% on an year-over-year basis. Now in terms of operating profit, because the growth rate of the key businesses under Kakao is still quite steep, we expect very positive top line expansion. But we also need investment in order for us to solidify our positioning in the global market. We expect internally that we will be able to sustain a double-digit operating profit margin, but our objective is to bring a balanced growth between growth and investments.

The following question will be presented by Shin Soyun from Credit Suisse.

I would like to ask 2 questions. First, CEO NK, you talked a lot about the changes to be implemented for Kakao Talk. For each of the tabs in Kakao Talk, can you explain what those changes would look like and what impact overall from a business perspective this will have? And is this the main driver behind the 40% growth that you've shared in terms of your Top Biz growth the future. And also, it seems like this is an important timing for you to make investments for your global growth when it comes to Kakao Page. I would like to know what your plans are in terms of monetizing this business in the global market? And also, can you share with us what the margin profile is because for domestic, you're already at double-digit. But with the overseas business also show a similar uptrend trajectory in terms of the OP margin?

That was a very detailed specific question regarding the changes that's upcoming in each of the tab, I think it will be helpful if I share with you the process that landed us where we are. We had about 1.5 months ago, we had a workshop engaging all of the executives. And we thought as to how we could better evolve our view and shopping tab within the Kakao Talk, because in terms of the performance, we had underperformed our expectations. So we wanted to really find ways as to how we could bring about a bigger growth. So I think what's very important is defining the problem itself. Quite some time ago, I was riding a bicycle, and I started feeling a wrist pain. So I put ointment on it, and I did many things, but I went to the hospital, and they told me that the problem was not my wrist but my hyper pressure. So as this analogy shows, defining the problem is most important. So the View Tab, shopping tab, the traffic level is -- was not up to the expectations that we had, had. And internally, our discussions and conclusion was that, that is due to the characteristics that's displayed by the users of Kakao Talk, meaning they are bound by an objective when they use Kakao Talk as a communication tool. Basically, users would launch Kakao Talk app in order to check the message that they receive or to send a message to other people. So it is bound by a specific objective. So just to cite, I guess, an example, it's like 9:00 a.m. or 8:50 in the morning and you're rushing to your office, and you've just landed at a subway station and you're very busy and rushing to the office. And it is at that point in time, we are pushing ad and commerce to this user. But still, we were able to bring advertisement and commerce performance because of the extensive coverage that we have. We have [ 50 million ] people in our coverage. So even if these users were busy, we were still able to bring performance. But in the perspective of the business that we are engaged in, this is not the most optimal time for our user base because they're always quite busy. So we felt that it will be important for us to expand the key context under which the users were using our services to one that is not bound by an objective where the people could just very casually engage in an interaction. And we've defined that as our strategy forward. So it's not necessarily bringing improvements and enhancements to the current [ view ] tab or shopping tab. It is more of adding an interactive element to the profile, to the friends list, and to the chat tab. So basically, we want to be able to provide a solution where people can take sufficient time and to have fun and entertainment as it interacts based off of our platform. So we want to be able to expand the context under which the users will be using our services. So we will not be -- so what we want is we want -- we don't want users who are always rushing during the commuting hours, but we want people to take ample time to enjoy different elements that Kakao platforms can offer. We actually have an actual experience or a prior example, which is Kakao Talk Gift. Originally, when Kakao Talk Gift first -- Kakao Talk Gift first started, it was for [ prizes ] only. But then the context under which that this product was used was expanded to just gift friends depending on certain lifecycle in their lives or depending on the feelings that they're feeling. So I think as we've experienced from Kakao Talk Gift, we will be able to see a heightened opportunity in terms of business as we go forward. And so also, we want to activate the use of the open chatting feature in Kakao Talk and want to expand the use of the Kakao Talk base on people's common interest. Because open chatting is like a playground where people who don't know one another, all come together under a common interest. And so it's like a playground, providing high level of freedom and also supporting an interaction of a very fun and entertaining content. So I think we can try many different flexible business models. The second question on Kakao Entertainment. In 2022, our foremost priority will be placed on global market expansion. Looking at North America, basically, we would maximize synergies across multi-content platform network, including Tapas, Radish and Wuxiaworld. And by 2024, our objective is to become a #1 story IP provider in the North American market. And then through Tapas, we will expand on the original IP provision, especially the IPs that have already been proven by the Korean users, and we expect that will accelerate growth going forward. And for Radish, we will once again notch up the spectrum of story IP from a reading novel to a listening novel. Wuxiaworld has a strength against the male population, the contents that cater to their preference. And we will also try to increase original IP provision to this platform and will really kickstart further growth in North America. And also in ASEAN, our strategy will be focused on the original IPs, and our objective is to become an unrivaled #1 provider in Taiwan and in Thailand. On a revenue basis, in Japan, we are also once again a #1 provider in the digital ad market in Japan and supported by a very strong content library. And through renewals and marketing, we were able to bring year-over-year more than double-fold growth. And also last March, with the Piccoma service launch in France, we've also made our first step full-fledged into the European market. And also, it's only been about a month since its initial launch, but I can tell you that we are well on target. And in regards to the profitability of our global business, it will take some time until we see some visible financial results from this global expansion and investment into content. Our objective is to make sure that we very quickly stabilize and bring up the GMV level. And through the organizational readjustments in the North American entities as well as by efficiencies and cost spending, we will do our best to bring about profit improvement in an ASAP basis. But we think that in terms of the guidance, we will be able to see positive numbers come in starting next year from our global businesses.

The next question will be provided by Sung Jong Hwa from eBest Investment and Securities.

I would like to first congratulate NK for taking office as the CEO. My question actually is a follow-up to the previous question. You mentioned -- there was a question about the year-over-year guidance on Talk Biz that it's currently in the low 40% level. I don't think you've answered this question. Are you going to maintain the guidance, or would you be changing and adjusting the guidance? Because in order for you to achieve the 40% growth, that means since the growth was quite low in Q2, we are going to have to see a very explosive growth come through in Q2 as well as in the second half of the year. So can you share with us where this confidence actually is from in terms of any business innovations you are planning or any new business endeavors. That would be helpful if you could provide some color. And in the previous IR meetings, we've heard of the integrated payment systems and integrated basket models for the Talk channel in the second half to be introduced. And the Talk channel revenue is going to actually surpass that of the business revenue. So in light of all of these factors, would you be keeping to the previous guidance?

Yes, we are closely monitoring the market in terms of the short term because there are short-term uncertainties. It may seem like we're a bit aggressive, but I think the details could be shared by Jae.

Yes, Q1 Bizboard performance was a bit challenged, but still it is in the positive domain. And also, if you look at our Talk Message growth, it was around 50%, which includes Talk Channel and Notification or info talk. And so if you look at the trend, basically, the advertisers who experienced high efficiency of the talk channels have continuously adopted Bizboard band Sync, and we are now seeing advertisers with more than -- or the Talk channels with more than 100,000 channel friends have actually gone up in numbers quite significantly. So we are looking forward to an improved top line revenue per each of the Talk channel. And out of the Talk Biz segment, the commerce or the transactional type of business had a lower performance. But as we go into the second half, as we strengthen and beef up our product offerings and really connect well to the Talk Store strategies, we can expect better performance to come through as we enter into the second half of the year. Of the Talk Biz, basically, if you take a look at Kakao Gift, in the past, it was mostly giving friends a gift. But recently, we are announcing more activated activities under the open chat where people with common interest under a -- who share a common topic come together. So we see a lot of occasions where people are giving gifts to people who are not their friends. So for friend gifting, it was on special days, anniversary days and for special purposes. But inside the open chatting, there is more game element that's been applied to it through random games or first-come-first-gift basis. So even if it's not a special anniversary day, we are seeing people giving and receiving gifts. Although right now the GMV mix is still quite low, in the light of the fact that this is the direction that we are going to go forward, I believe that overall, from a mid- to long-term perspective, this type of a gifting practice between people who do not know one another who've met in the open chatting will, in the end, really drive the total GMV for gift.

The following question will be presented by Kim Jingu from Kiwoom Securities.

Yes. I would like to also congratulate NK and the new management team. My first question is, can you share with us what your vision is for the metaverse business? What is the separate basis investment plan put in place at this point? Second question for your story business, in order to bring the IPs on to the screen, what is the amount of production -- production size and the investment that you have set aside with this? And also, can you share with us what the pipeline is and what your strategies are for distribution of such films and dramas?

Now the reason why we are placing our interest behind metaverse is not because this is a new technology, but this is a fundamental change in way in which we connect the users online. To Kakao, metaverse is all about living and communicating as a different identity in a virtual world, where people are connected. You don't necessarily need to use any flamboyant avatars or 3D tools, even with a 2D sound image and text and many other digital attributes, we can bring about a fundamental transformation in the way people communicate with one another and connect with one another. I saw a Netflix drama called Black Mirror, and what this drama showed was that this person who died, there were a huge amount of SM text that was left behind, which was all collected and used to create a character with the same mannerisms in which that person spoke. So Kakao really has this massive amount of text data, which is an important digital attribute and that -- those texts can be actually utilized to create a personality. So as such, you could see that compared to 3D information, these types of digital attributes and elements could be considered more important. Now having said that, the inherent limitation that Kakao Talk has that it is a very private friends only text-based services. And so we believe that open chatting is more appropriate for it to really house the vision that Kakao Talk has when it comes to metaverse. And so going forward, we want to see open chatting evolve into a much more extended space, where the users can be supported in terms of all the social, cultural and economic activities that they engage in. And if you look at the very essence of what metaverse is, it's very important to have that metaverse to have a structure that best support the new economic activities that take place across the users. Users would be making content, communicating with one another and engaging in transactions, whereby they can actually make money. So that is the system of metaverse and that's the key of this B2C2C structure. And a good example is that we even now see an open chatting, a chat room, where people share stock price-related information. And we could even think of a case in this new world, where the head or the operator of that chat room will turn that into a paid services. That is something that is an example of what we may be able to see. Now for Kakao Entertainment media business supported by the writers, the artists and the producers and story IPs, our objective is to maximize synergies across this and really come up with produce and plan content that best befit the needs of the platform and the viewership. And we will leap as a studio with all these capabilities as we go forward. The market and some segments have been concerned about the recent sluggishness in OTT platform growth, but the growth in Asian market is continuing, and there is high level of interest by these OTTs, global OTTs on K-Content, which have recently released many title -- AAA titles recently. And Kakao Entertainment actually has all the story IPs, the top creators and artists. And some of the examples are -- if you look at one of the drama that is currently being aired through SBS titled Again My Life is currently under preparation for it to be provided to Netflix. And there is also work being done on Korean remake version of Money Heist, as well as Accidental Narco, which is being directed by Director Yoon Jong-bin. So there's about 15 different lineup of dramas and movies that are under the pipeline, and those will be able to be showcased [ through ] the viewership, global viewers in the near future.

The last question will be presented by from Merrill Lynch Securities.

I would like to ask 1 or 2 questions relating to regulatory risk. With the change in the administration in Korea, there may be some changes in the political as well as the regulatory landscape, and there is a strong global trend on regulating the big tech companies. There is also a mention of making an obligation to provide an outlink for the news articles. Anyhow, can you provide us with an overall, I guess, picture overall take with regards to the -- your -- how you're going to respond to such regulatory environment? And also in the context of regulation, Kakao Mobility is cited quite often, we've seen higher demand for Kakao T Black and Venti during the COVID period. I guess, it would be helpful, if you could provide some explanation regarding regulation.

Well, the new incoming transitional committee for the Presidential Transitional Committee have announced some of the key national priorities and have said that they will come up with self-regulation, as well as have a minimal level of institutional mechanisms in place for -- in the platform industry. And also last year, there was online platform regulation bill, which is currently pending in the Congress, and so we will keep a very close watch on how the policy direction goes in the future. It is true that as the social influence of platforms are increasing, the responsibility and accountability of platform companies has become much more grave, and hence, we will once again follow how the policy plays out, and we will fully comply with the obligations that are placed upon us. Well, once again, we're closely monitoring how things will happen in terms of self-regulation and the online platform bill. And we, at Kakao, we are clearly aware of the fact that our responsibility and accountability, as a member of a community is actually growing, especially in the age of accelerated digital economy, as well as in the world of post pandemic. We are fully adhering to the fair contract guidelines that we have committed to up to-date, and we will continue to make sure that we play our part and live up to our social responsibilities and complying with all the fair trade related requirements. And also, in terms of the outlink and the news article related policies, nothing has yet been confirmed. In terms of our expansion strategies for mobility and ESG aspects, first, looking at Kakao T, and looking at some of the measures, the number of calls completed for the Taxi business was up by 38% year-over-year, and T Blue fleet has increased to 37,000. And as you've mentioned, supported by a greater platform dependency, as well as higher operating leverage, the mix of premium call usage is going up. In terms of the global strategies, we are continuously exploring new opportunities. We've made strategic equity investment into [ Splits ], a U.K.-based mobility platform, and also, we will continue to strengthen our global capabilities through investment and through collaboration with other global platform companies. So after Q2, once the COVID situation is somehow placed under control, and as more people go overseas for travel, we will be providing global -- we are looking to provide global roaming services, providing support to people going to 120 different countries around the world and have them just use Kakao T app for mobility needs. Long-term perspective, we would like to bring our existing mobility business into the local markets, develop them into a platform, utilize the data base, as well as technology to further expand our business domain. And also, Kakao Mobility together with its partners, will provide a seamless data across passenger, logistics and services and supported by digital twin and data analytics and demand forecasting, we would like to help our partners innovate. And also TMS as well as SaaS are the types of technology products that we will be offering to provide the most optimal logistical routes to bring about a digital transition and innovation in logistics and provide the technology that's required by our partners. Also, we plan to expand collaboration with the taxi operators and designated driver business operators and improve transparency by opening up and sharing our algorithms when it comes to [ vehicle placement ] and the KRW 15 billion of fund that's been set aside for mobility inclusive program will come under full operation starting this year. And also, we will build out a green mobility in terms of using EVs for the taxi, as well as for faster deployment of EV across our user base.

Thank you. This brings us to the end of the earnings presentation of Kakao for Q1, '22. Thank you to analysts and investors for joining us this morning. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]