Kakao Games "Cleaned up non-core business from 3Q...game-centered reorganization"

[Korea Financial Times, Kim JaeHun] Kakao Games is rushing to reorganize its business structure centered on its gaming business after posting sluggish results in the second quarter of this year due to the disappointing performance of its new lineup.

In particular, rumors of selling non-gaming subsidiaries such as Kakao VX have been prominent, and the company is considering various options for non-core businesses that are unlikely to grow in the future.

Kakao Games announced its second-quarter earnings on August 7, reporting consolidated revenue of 23.56 billion won and operating profit of about 2.8 billion won. Revenue decreased by about 13% year-on-year and 4% quarter-on-quarter, and operating profit decreased by about 89% and 77%, respectively.

The deterioration in Kakao Games' performance was due to the disappointing performance of new games released this year, as well as the continued sluggishness of non-gaming subsidiaries such as Kakao VX.

During the Q2 earnings call, CFO Cho Hyuk-min admitted, "We are currently in the process of reorganizing our service lineup due to a decline in sales due to poor performance of new games." He also admitted that non-gaming businesses, such as Kakao VZ's golf equipment sales business, did not continue to grow satisfactorily.

To rebound, Kakao Games plans to reorganize its business structure around its core game business. In particular, the company plans to scale back its non-gaming subsidiaries such as Kakao VX and Sena Technology, which are currently being talked about for sale.

CFO Cho Hyuk-min said, "We have been reviewing non-core businesses and projects since the beginning of this year while keeping an eye on the internal and external situation," adding, "For those businesses that cannot find a future, we will carefully simulate them and organize them in earnest from the third quarter of this year."

However, the company has drawn a line in the sand when it comes to selling off subsidiaries. The company explained that selling subsidiaries is only one option, and that it is considering various options, including downsizing.

CFO Cho Hyuk-min said, "The meaning of 'organizing' cannot be judged only by selling, so selling is one option, but various business reductions are also possible." He emphasized, "We will start organizing early, prioritizing entrepreneurial companies, and we will confirm this through future announcements."

Kakao Games plans to expand its global momentum by strengthening its core game business.

First, the company and its development subsidiaries will build a solid lineup of new mobile games, as well as PC online and console platform-based RTS, hack-and-slash, roguelike, SRPG, root shooter, and other genres.

Kakao Gains is launching the Steam Early Access service for domestic users of its new RTS 'Stormgate' on August 14th. Following this, the company will launch "Path of Exile 2," the sequel to the PC hack-and-slash action RPG "Path of Exile," which recently broke the all-time Steam best-seller record, in the fourth quarter.

The company will also showcase three new premium indie games on console platforms, including Lost Eidolons: Witch of Hypocrisy, Section 13, and God Save Birmingham, through its global development subsidiary OceanDrive Studios, at Gamescom 2024, the world's largest game show in Cologne, Germany, this month.

Development subsidiaries such as Lionheart Studio are also preparing new titles. Based on its extensive know-how in global direct service for PC online and console games, Kakao Games plans to secure long-term momentum by visualizing the release of AAA titles such as "Chrono Odyssey," "Akiage 2," and "The Swordsman's Youngest Son (tentative title)" from next year.

Kakao Games has also begun to raise funds to strengthen its game business, most notably by issuing an exchangeable bond (EB) worth KRW 270 billion the previous day (August 6). It was issued using Kakao Games' stake in Crafton, and the issue price per share was KRW 324,027.

"As we gain momentum for our sustainable growth and global business diversification, we will make efforts to streamline costs and increase financial stability in the second half of the year," said Han Sang-woo, CEO of Kakao Games. "In particular, we will focus on showcasing well-made works, from indie games to big movies, based on the game business."

Kim JaeHun(rlqm93@fntimes.com)