Kakao Pay Corp. (A377300) Earnings Call Transcript & Summary

[Interpreted] Good morning and good evening. Thank you all for joining the conference call for the Kakao Pay earnings results. This conference will start with a presentation followed by a Q&A session. [Operator Instructions] Now we will begin the presentation on Kakao Pay's Second Quarter of Fiscal Year 2025 Earnings Results.

[Interpreted] Good afternoon. This is Allen, the CEO. Thank you all for joining Kakao Pay's Second Quarter 2025 Earnings Conference Call. I will begin with key performance metrics, TPV, consolidated basis revenue and expense, profit and loss, which will be followed with business performance highlights for Q2 of 2025. First, on key metrics for the second quarter. Q2 2025 TPV was up 10% year-on-year, reaching KRW 45 trillion. Revenue TPV was KRW 13.2 trillion, rising 9% year-over-year. Q2 '25 revenue was 28.5% higher versus the second quarter of last year, reporting KRW 238.3 billion. Digital finance revenue for the first time recorded KRW 100 billion level, accounting for 42% of total revenue. Second quarter operating profit was KRW 9.3 billion, sustaining quarterly profit-making [ streak ] for 2 consecutive quarters. Q2 net income was KRW 14.1 billion, EBITDA KRW 17.4 billion and financial income reported KRW 13.5 billion. Next is on key business metrics. DAU of Kakao Pay increased 3% year-over-year to 6.35 million users, accounting for 26.9% of MAU. This is 2.2 percentage point increase versus 24.7% of Q2 of '24, which is a testament to growing user stickiness towards Kakao Pay services. Average transaction per user for Q2 was 69, which is up 37% year-over-year. We are seeing an uptrend in user transaction across securities, benefits and payments. And ARPU in Q2 reported KRW 10,075, breaking KRW 10,001 level for the first time. Digital financial revenue posted 82% year-on-year increase, which drove ARPU increase of 36% year-over-year. Next, I would like to invite our CFO, Aidan, who will present on Q2 TPV and other financial results.

Hello. This is Aidan. If you look at Q2 TPV, it was up 10% year-over-year, reporting KRW 45 trillion. Revenue TPV increased 9% on year, reporting KRW 13.2 trillion. We see TPV uptrend across all domains of payment, financial services and money transfer. Payment TPV was up 10% year-on-year on service expansion through good deal affinity partners and strong promotion of seasonal events and special deal promotions at CBS. Offline payment TPV hence increased 35% year-over-year, while cross-border TPV increased 20% year-on-year, driven by growth of key online merchants and inbound travelers from China. Loan TPV was up 6% year-on-year, while stock trading volume reported KRW 23 trillion, doubling year-over-year. Money transfer TPV increased 10% year-on-year, while Pay Money subscribers reached over KRW 31 billion and monthly user count reached around 20 million. Next, operating revenue. Before moving on to the breakdown, we renamed other services into platform services as we are starting to see results materialize from platform-based businesses. Q2 revenue was up 28.5% year-on-year, reporting KRW 238.3 billion, and digital finance was up 82%, platform services, 45% versus last year, which all drove top line growth. Digital Finance for the first time reported KRW 100 billion in terms of revenue, accounting for 42% of total revenue. While online payment services growth was somewhat unsatisfactory, off-line and cross-border continued a double-digit growth trajectory, driving total payment service growth of 3% year-over-year. Financial service saw revenue growth across entire services, which are loan investments and insurance recording 81.8% year-over-year growth and 25.1% growth Q-over-Q. Investment increased 148% year-over-year, driven by uptrend in TPV, both domestic and overseas on top of growth from the IB business. While insurance increased 88% year-over-year following the launch of new products on top of stable base of current products and expansion of insurance database or data sales. Loan service saw growing user inflow from customized recommendations with the underpinning of data, but due to lending-related regulations in June posted a mere growth of 3% year-on-year. Platform service revenue saw 45% year-over-year growth driven by card recommendations and advertisement services. Q2 operating expense was up 18.8% year-on-year and 10.3% Q-on-Q, reaching KRW 229 billion. Marketing expense in Q2 increased 23.4% year-on-year on co-marketing with strategic partners and promotion for financial services, but it was around 8.7% against revenue, keeping below the 10% range. Labor cost increased 19.5% year-on-year due to bonuses paid at subsidiaries and stock-based compensation. As operating expenses, which are linked to higher revenue and financial subsidiaries increased, other expense increased 72.2% year-on-year. Next is profit and loss. Q2, Kakao Pay's consolidated operating profit was KRW 9.3 billion, more than doubling versus last quarter, as we continue to fortify earnings power. Net income and EBITDA were KRW 14.1 billion and KRW 17.4 billion, respectively, achieving double-digit figure. On improved business performance, we are seeing fundamental capacity grow stronger. And financial services, including securities and insurance, will sustain their top line growth. And with rising of new platform business, coupled with company-wide cost savings, we will gradually improve profit-making structure. Q2 stand-alone revenue was up 8.4% year-on-year and 3.9% Q-over-Q, reaching KRW 167.2 billion. Operating profit for the quarter was KRW 14.2 billion with OP margin of 8.5%. Stand-alone net income was KRW 20.7 billion. And next, I would like to invite Jason, who will run through the highlights of the second quarter performance.

[Interpreted] This is Jason, heading the Business division. First is on the payment. We've created strategic and cooperative framework with a total of 8 different companies, including VAN and POS post companies, building up an alliance to expand on the offline business. By developing system interface with such companies, we plan to provide added services, such as CRM tools, which will help drive top line revenue of merchants. We're also supporting setting up QR-based ordering system for merchants nationwide, which is more cost efficient when compared to usage fees for tablet terminal devices, driving synergies from our alliance partners. This will help merchants to reduce on cost, improve access to customers while Kakao Pay users will enjoy attractive benefits and maximize convenience. Together with the partners partaking in the alliance, we will seek various ways to support smaller vendors and owners to create a payment ecosystem that brings benefits to all. Next, Platform services. As mentioned, we changed the name from other services to Platform services in order to capture new business expansion into the domains of advertising, credit card and telecom services. Firstly, Kakao Pay's ad business saw its revenue grow 66% year-on-year, powered by MyData. We've refined targeted ads using MyData and payment data. And based on this, Kakao Pay's ad business is evolving into high-margin sales lead model. Our internal analytics show that MyData-based targeted ad is driving 3x click-through rate, doubling of conversion and 40% lower acquisition cost, and it's a win-win for both users and advertisers alike. Another pillar of growth is credit card brokerage. Number of cards issued based on Kakao Pay's intermediation increased by 2.6x year-over-year on higher demand from users, which was driven by recommendations based on personalized analytics, providing highly superior benefits to users. For instance, cumulative issuance of Travlog check card reached above 200,000, which delivers distinctive experience of hyperconnectivity, allowing link up with any bank account Kakao Pay user has. Through partnerships and collaborations, Kakao Pay is also offering comparison services for telco rates, including MNO and MVNO schemes. Through such alliance and collaboration, Kakao Pay will diversify strategic telco plans, and through adopting hyper-personalized recommendation service powered by MyData, we plan to speed up growth. Next, Jeff, who leads our services domain, will talk about AI services and business results of Kakao Pay securities and insurance services for the second quarter.

[Interpreted] Hello. This is Jeff. Under the name Payi, we will be unveiling Kakao Pay's AI services in consecutive phases. First of such endeavor is AI diagnostics for insurance, which opened officially last June. Basically, AI will analyze health checkup results and insurance coverage, pinpointing potential needs for insurance protection, which will drive great synergies from Kakao Pay's insurance services. Although at its early stage, we're making meaningful business contributions and gaining positive user feedback. Kakao Pay will spearhead industry's evolution into agentic AI based on 3 core strengths, which are: firstly, massive user data; second, financial products that drive real behavior; and three, strong accessibility that KakaoTalk provides. We will be starting with AI for insurance diagnostics, which will be followed by AI services across each financial domain as we integrate and evolve into financial AI agent. In payment, our plan is to launch spending AI and payment agent to be the key enablers for transactional services, helping them to adopt agent models with ease. We will also work in tandem with Kakao's AI agent to fortify channel competitiveness of Kakao Pay's AI services. Next is Kakao Pay Securities. Q2 stock trading volume increased 101% year-on-year to KRW 23.5 trillion, while number of transactions for the quarter tripled recording 91 million, while monthly user count was up 75% year-on-year, breaking 1 million count. Total deposit assets increased 89% for the same period to KRW 5.6 trillion, driven by uptrend in stock trading volume, which led to an increase in stock balance. Annuity savings asset broke KRW 100 billion in deposit assets in just 6 months since its release, contributing to growing assets under deposit. With trading volume growing, fee income and IB revenue also increased, driving Q2 revenue up 126% year-on-year to KRW 65.6 billion with KRW 5.2 billion in operating profit, attesting to solid growth of operating profit for 3 consecutive quarters. Next is on insurance services. Underpinned by the massive user pool and data-powered targeting, Kakao Pay's insurance consultation data showed sevenfold growth year-over-year. We expect to be able to expand insurance consultation user pool initially from 7 million of Kakao Pay Insurance's MyData-enabled base to 20 million who are MyData users of Kakao Pay to eventually 33 million of total users of Kakao Pay services. To leverage this growing database and enable a one-stop service leading up to the sign-up of insurance policies, we're working under the goal of adopting a business model to maximize growth and profitability during the third quarter. We've hence set up a collaborative framework with professional GA groups to enhance operational efficiency and minimize the risk of directly managing agent organizations. Upon success gained from consultation linked business and enhanced data analytics capacity, we will expand into the domain of direct consultation. As such, we are seeking to deliver consistent experience from customer acquisition to consultation, thereby driving up operational efficiency and increasing the sign-up ratio to secure steady source of new income. Next, Allen will end the presentation with ESG and our future plans.

[Interpreted] It's Allen again. Last June, we published our third ESG report. And in the report, we made disclosures on key issues in compliance with IFRS sustainability disclosure standards, and we achieved data connectivity disclosure rate of 99.8% on a revenue basis. We also used ISAE 3000 as a third-party validation standard, further bolstering trust and transparency of information under disclosure. In addition to the ESG report, we also delivered wide-ranging information to stakeholders through a variety of channels for ESG disclosure, such as corporate governance report and environmental information disclosure. In terms of shared growth programs under our slogan and spirit of closer with Kakao, we are making wide-ranging efforts to be by the side of local communities. We've been running Oraeorae Together Store campaigns for small business owners and Kakaopay Insurance, together with Habitat Korea carried out campaigns to prevent fraudulent rent schemes. Also to commemorate International Firefighters Day, we donated safety gear to Wildfire Prevention Squad, who showed exceptional caliber in suppressing recent forest fire. We also held lecture courses and credit for military personnels at Army base in collaboration with credit counseling and recovery service. Kakao Pay will continue to engage in ESG activities aligned with our business objectives as we strive to live up to our social responsibilities in an effort to ensure sustainable future. We've so far gone through key highlights for Q2 of 2025. Since achieving a turnaround in operating profit for the first time last quarter, we were able to solidify stronger fundamentals by generating better results in the second quarter. Kakao Pay has been steadfast in pursuing 3 key strategies, which are value chain expansion, data-powered business development and traffic-driven new business expansion. First, we expanded business reach through offline payment alliance, insurance consultation-linked business as we ride over the saturated market in view of expanding the business value chain. Second, Kakao Pay's MyData is now set up as our core infrastructure used across all business domains, spanning loans, nonfinancial brokerage and AI services. It is now working as a fuel kickstarting growth engine behind various revenue streams and enabling sustainable growth of Kakao Pay. Third, by combining personalized targeting with massive user traffic, which we secured through strong content offerings and servicing, we are nurturing future growth engine in not only financial business, but also nonfinancial segments, including in ads and telecom brokerage, fully leveraging the platform capabilities. Under these 3 strategic pillars, Kakao Pay will generate both growth and profit to not fall short of market expectations. Thank you very much.

[Interpreted] [Operator Instructions] The first question will be provided by Jin-Gu Kim from Kiwoom Securities.

[Interpreted] I just have one question on AI. We've heard that Kakao is making preparations to roll out an AI agent in November. I would like to know as to whether there are any collaborations with Kakao Pay and what are Kakao Pay's planning going forward?

[Interpreted] This is Jeff. I will answer your question. Through the AI agents, we want people to discover wide-ranging functionality of Kakao Pay through the AI agent. And eventually, we will be able to broaden the scope and build depth. At initial launch, we're thinking of a simple form of connection-enabled services. For example, user says, make a transfer to Kakao AI agent, after which you get connected to Kakao Pay's money transfer features. And of course, same thing will apply to other services as we expand. So following the launch, we then move on to Phase 2, where we will be able to innovate user experience. And so we are currently talking to Kakao on this very topic. So first stage is strengthening data connection based on MCP. It's where Kakao AI agent queries and summarizes data of Kakao Pay. For instance, user can prompt the agent by saying, show me the most recent payment record to which the agent looks for users' payment data, including the use of Kakao Pay and summarizes and delivers the rightful insight. Second stage is merging with business logic. Simply put, key features of Pay are made complete inside the AI agent. For example, by using the AI agent, you can get gift recommendations and the payment will be made by a credit card that is most often used or be made with the one that gives the best benefit to the user. So everything happens without having to leave the AI agent. To enable this, number one, Kakao Pay needs to have payment MCP or payment agent. Number two, we need to agree on the implementation with Kakao's AI agent and Kakao Pay. And number three, involve not only Kakao but non-captive commerce and O2O services as well. So it is truly a big task, but it's the right way forward. So we are currently discussing this topic as well. Through such strong collaboration with Kakao AI agent, we will continue to work towards building and offering industry-leading AI services.

[Interpreted] The following question will be presented by Dong Woo Kim from Kyobo Securities Co., Ltd.