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Poised for a strong fall season

2Q25 review: OP sharply beats consensus

For 2Q25, Kakao reported revenue of W2.03tr (+1% YoY; 4% above the consensus of W1.95tr) and operating profit of W186bn (+39% YoY; 48% above the consensus of W125bn). Platform revenue rose 10% YoY to W1.06tr (3% above expectations), driven by strong performances from Kakao Pay and Kakao Mobility. Talk Biz revenue was W542bn (+7% YoY), in line with expectations.

Content revenue came in at W973bn (-7% YoY), exceeding expectations by 7% thanks to solid results from Kakao Story and the media segment. Notably, Piccoma revenue grew 10% YoY. Operating expenses amounted to W1.84tr (-2% YoY), in line with expectations. Overall cost discipline remained intact, while strategic marketing efforts by Piccoma yielded meaningful results.

Time spent on the platform likely to rebound

Kakao is targeting a 20%+ increase in the time users spend on the platform. Two key initiatives are central to this goal: 1) a major redesign of the KakaoTalk app; and 2) the launch of an AI agent. Starting in September, KakaoTalk will undergo a major revamp across its five bottom tabs. In particular, the third tab (currently the Open Chat tab) is set to be revamped with a feed-style layout centered on short-form content.

Kakao plans to launch its AI agent, which is being developed in collaboration with OpenAI, within 2025. More details about the service are likely to be shared during Kakao’s annual developer conference in September. Even if the AI agent drives only a modest 5% increase in total annual time spent on KakaoTalk, we estimate Talk Biz ad revenue growth could accelerate to 14% in 2026.

Maintain Buy and raise TP to W70,000 (from W50,000)

We raise our target price on Kakao by 40% to W70,000, as we revised up our 2026 forecasts due to solid revenue across the mobility, payments, and Piccoma businesses as well as effective cost control (target 2026F P/E of 42x unchanged). The stock is currently trading at a 2026F P/E of 34x. We believe expectations surrounding upcoming services will sustain strong share price momentum at least through the fall (into 4Q25).

Encouragingly, Kakao delivered notable margin improvement in 2Q25, driven by effective cost management. We forecast operating profit to continue growing strongly through 2026 (+47% in 2025F and +38% in 2026F). If the company succeeds in boosting total time spent on the platform by even 10% through its app overhaul and AI service rollout, we see ample upside to our estimates.