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Edited Transcript of 035720.KQ earnings conference call or presentation 7-Nov-19 12:00am GMT

Q3 2019 Kakao Corp Earnings Call

SEOUL Nov 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Kakao Corp earnings conference call or presentation Thursday, November 7, 2019 at 12:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Eleanor Lee

Kakao Corp. - Manager of IR

* Jae-Hyun Bae

Kakao Corp. - EVP

* Min-Soo Yeo

Kakao Corp. - Co-CEO

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Conference Call Participants

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* Dong-hee Kim

Meritz Securities Co., Ltd., Research Division - Analyst

* Minuh Cha

Goldman Sachs Group Inc., Research Division - Analyst

* Seungjoo Ro

CLSA Limited, Research Division - Research Analyst

* Seyon Park

Morgan Stanley, Research Division - Equity Analyst

* Stanley Yang

JP Morgan Chase & Co, Research Division - Analyst

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Presentation

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Operator [1]

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(foreign language)

Good morning and good evening. First of all, thank you all for joining this conference call. And now we will begin the conference of the Fiscal Year 2019 Third Quarter Earnings Results by Kakao. (Operator Instructions) Now we shall commence the presentation on the fiscal year 2019 third quarter earnings results by Kakao.

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Eleanor Lee, Kakao Corp. - Manager of IR [2]

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(foreign language)

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Unidentified Company Representative, [3]

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[Interpreted] Good morning. I am Eleanor from Kakao's IR team. Thank you for joining Kakao's Q3 2019 Earnings Release Call. With me today, our CEO, Mason Yeo; and our Vice President, Jae 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.

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Min-Soo Yeo, Kakao Corp. - Co-CEO [4]

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(foreign language)

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Unidentified Company Representative, [5]

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[Interpreted] Good morning. This is Mason. Thank you for joining our earnings release call today. Kakao's business performance this quarter can be summarized as a healthy growth. In Q3, we achieved record high revenue yet again. And as Kakao is entering a phase of bottom line growth, as mentioned last quarter, operating profit also broke the record since 2015. I would like to take this opportunity to extend my deep appreciation to our Kakao crew who have worked hard to bring such a great performance.

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Min-Soo Yeo, Kakao Corp. - Co-CEO [6]

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(foreign language)

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Unidentified Company Representative, [7]

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[Interpreted] Let me first talk about our platform business results. Under the Talk Biz, we started open beta service for Kakao Talk Bizboard, October 7. In around 1 month, since the open beta phase, we saw more participation by advertisers from various different verticals who haven't previously participated in the closed beta. They have shown great interest and the fact that customized products with high degree of freedom without the constraints of time and budget can be exposed to the entire population. Kakao Talk Bizboard currently uses Kakao Talk traffic on a limited basis, and we have only started to expand the advertiser pool. So there is great upside potential for ad traffic, volume and price. In the short run, we are focusing on successful lending into the ad market in time for the year-end high season and in the long run we plan to develop different types of landing pages and combine an upgrade with our other business solutions. In line with the growth of TalkBoard, we will do our best so that Kakao Talk can bring inclusive and healthy growth as a business platform.

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Min-Soo Yeo, Kakao Corp. - Co-CEO [8]

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(foreign language)

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Unidentified Company Representative, [9]

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[Interpreted] Under this backdrop, last September, we rebranded Kakao Talk Plus Friend into Kakao Talk Channel whose concept is like a business homepage. It's a space that can be created by anyone and where people connect. Kakao Talk Channel is a place where brand and its customers communicate one-on-one real-time basis and is naturally evolving into smart chatting, enabling a very quick response with a click of a button and one touch purchases inside the chat room and AI-chatbot-powered customer flow management. We also recently launched Talk Calendar. It not only helps to manage one's schedule, but also schedule one has with other messenger friends or chat room members. We will strengthen features that help the relationship between users and business partners by making it easy to register and manage important events for brands that people like. Based on such Kakao Talk Channel transformation, we expect there to be upside potential for message-based ads that use smart messaging, notification talk, et cetera.

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Min-Soo Yeo, Kakao Corp. - Co-CEO [10]

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(foreign language)

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Unidentified Company Representative, [11]

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[Interpreted] As such, business actions are expanding within the commerce business of Kakao Talk. First, Kakao Talk Gift Q3 GMV is still going strong with 42% year-over-year growth. During the [Jeonse] Thanksgiving holidays, growth was particularly strong since the act of gifting via the mobile platform is now expanding to other occasions aside from birthdays and we see engagement of different age groups. Also, as the business platform gains its influence, we are seeing positive changes happen in Talk Store, the messenger-based commerce platform. Since one need not take the extra step of logging in, since the user is already inside the talk platform, both the users and sellers are responding well to the convenience of shopping and making payments with Pay. For Kakao Commerce, we will take a step forward from just catering to users' simple needs to make purchases as we are doing through Gift, Talk Store and Talk Deal and eventually evolve into a platform that can offer unique and context aware shopping experiences that only Kakao can provide.

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Min-Soo Yeo, Kakao Corp. - Co-CEO [12]

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(foreign language)

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Unidentified Company Representative, [13]

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[Interpreted] Kakao Pay's Q3 GMV was KRW 12.9 trillion, up more than twofold year-over-year. And on a cumulative basis for the year, GMV reported KRW 34.6 trillion. Solid growth was seen across all of the financial services, including transfer and payment with salient trend from online payment. This quarter, Kakao Pay was added as an easy payment method on the Apple App Store and GMV from large online merchants are growing quite fast. We believe such outcome is driven by greater platform influence leading to onboarding of new merchants as well as the user preference that makes them choose Kakao Pay as their payment option of choice. Also, last July, we launched local tax payment service and in September, telecom bill payment service, which all drove bill payment business to grow more than 3x year-on-year. Also in October, we started Kakao Pay easy insurance program offering comparison between auto premiums and launching the pet insurance. And for the first time in Korea, we rolled out the rent guarantee insurance via the online channel for the 7.5 million households paying monthly rent or Jeonse, opening up a new chapter in Korea's Tech-fin innovation.

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Min-Soo Yeo, Kakao Corp. - Co-CEO [14]

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(foreign language)

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Unidentified Company Representative, [15]

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[Interpreted] Next is on content. In Q3, for the game business, we saw good performance for mobile games. TERA Classic launched August and Moonlight Sculptor launched early October in both of the markets. As a result, Kakao Games was able to make another leap as a global game publisher across PC games as seen from the success of Path of Exile and even to mobile MMORPGs. The Moonlight Sculptor had more than 3.5 million preorders, showing how important a strong IP is in the game market. We are currently making appropriate preparations to leverage our global publishing capabilities in the mobile publishing market with proven capabilities we showed from the Black Desert.

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Min-Soo Yeo, Kakao Corp. - Co-CEO [16]

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(foreign language)

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Unidentified Company Representative, [17]

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[Interpreted] In Q3, we reorganized Kakao Page platform and opened the original tab that features web-to-Interweb novels exclusive to Kakao Page. As a result, we saw greater user engagement and immersiveness with growing GMV for original titles, leading to record high Page GMV in the third quarter. Underpinned by proven original content in Korea, Page is preparing to expand its services to Southeast Asia. Piccoma, operated by Kakao Japan, saw its Q3 GMV grow 82% year-over-year, and Q3 cumulative GMV is about 160% of per annum volume of last year, attesting to rapid growth, thanks to the acquisition of influential local IP. For your information, Kakao's global paid content GMV, including Kakao Page, Piccoma and Daum Webtoon in total amounted to around KRW 290 billion last year. And this year, we project this figure to grow to around KRW 430 billion, growing around 48%.

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Min-Soo Yeo, Kakao Corp. - Co-CEO [18]

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(foreign language)

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Unidentified Company Representative, [19]

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[Interpreted] Lastly, I would like to mention about the strategic partnership between Kakao and SK Telecom, executed with a purpose to cooperate in the future ICT field. And that rapid transformation in technology and users' mobile usage patterns, we believe there is an organic evolution of the thread that cuts through the boundaries between telcos to device, device to platform and platform to users. To provide services that are better than global companies who are aggressively expanding their business equipped with capital and technologies, we felt that it was time for us to strengthen alliance with Korea's major ICT player. It is for this very reason, this partnership is especially meaningful. Both companies have set up a synergy council and would make detailed plans to create synergies between AI, 5G, IoT and future technology, content and platform collaborations will take place in order to strengthen our competitiveness in media, commerce as well as in other fields.

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Eleanor Lee, Kakao Corp. - Manager of IR [20]

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(foreign language)

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Unidentified Company Representative, [21]

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[Interpreted] Thank you. Now I would like to invite Jae Bae who will present on the Q3 financial results.

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Jae-Hyun Bae, Kakao Corp. - EVP [22]

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(foreign language)

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Unidentified Company Representative, [23]

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[Interpreted] Good morning. This is Jae. Let me walk you through Q3 2019 financial results. Q3 consolidated operating revenue was KRW 783.2 billion, up 7% Q-on-Q and 31% year-over-year. Platform revenue was up 7% Q-on-Q and 39% Y-o-Y to KRW 350.7 billion.

Looking at the breakdown. On the expansion of Talk Bizboard and solid growth from talk-based messaging business like the Talk Channel and Notification Talk, Q3 Talk Biz revenue was up 17% Q-on-Q. And on greater level of ad inventory within Kakao Talk and steep growth from the Gift GMV, there was 52% Y-o-Y growth with revenue reporting KRW 162.4 billion. Portal Biz revenue was down 8% Q-on-Q on slow seasonality for ads. However, on the back of new ad platform, Moment, adopted since Q4 of last year and expanded elements, UI enhancements and overall upgrade of search ad, there was year-over-year growth of 9% with revenue reporting KRW 126.1 billion.

For the new business revenue on Kakao Pay online merchant expansion and higher user demand for financial services like investment and bill payment and revenue growth for mobility service revenue, new business revenue was up 22% Q-on-Q and 105% Y-o-Y to KRW 62.3 billion, accelerating the monetization process for our new business units.

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Jae-Hyun Bae, Kakao Corp. - EVP [24]

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(foreign language)

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Unidentified Company Representative, [25]

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[Interpreted] Content revenue was up 6% Q-on-Q and 25% year-over-year to KRW 432.4 billion. First music content revenue was up 5% Q-on-Q and 11% Y-o-Y to KRW 151.5 billion on the back of efforts to strengthen retention of existing subscribers and implementing of revision promotion, which led to higher ARPU per 5.03 million paying subscribers, once again breaking the revenue record following last quarter.

On paid content, driven by solid user growth, both domestic and global for Kakao Page and Piccoma and GMV growth, revenue was up 13% Q-on-Q and 52% year-over-year to KRW 91.9 billion. For game content, on higher revenue from the strategic published game TERA Classic, which offsetted natural erosion from mobile and PC games, revenue reported KRW 99 billion, flat both Q-on-Q and year-over-year.

Lastly, IP Business and Others revenue was up 10% Q-on-Q on growth from Kakao IX' online and travel retail revenue growth and talent management IP business of Kakao. And an increased retail sales, thanks to channel expansion of Kakao IX, both domestic and global, revenue was up 79% year-over-year to report KRW 90.1 billion.

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Jae-Hyun Bae, Kakao Corp. - EVP [26]

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(foreign language)

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Unidentified Company Representative, [27]

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[Interpreted] Next is on consolidated operating expense and profit. Q3 consolidated operating expense was up 5% Q-on-Q and 27% year-over-year to KRW 724.1 billion. Key items are: first, the labor cost. Aside from the headcount increase, there was a great increase in one-off items, including 2 soft bonus payouts and booking of expenses related to annual leave due to the changes in the compensation system. As a result, labor cost was up 12% Q-on-Q and was up 36% year-over-year to KRW 177.4 billion and significant increases in new hires since 2018 and the consolidation impact from subsidiaries.

Revenue-linked expense was up 4% Q-on-Q to KRW 355 billion on top line growth of music and paid content, which led to an increase in revenue share with partners, and there was 36% year-over-year increase due to COGS increase from commerce revenue growth and paid content commission.

Outsourcing infrastructure expense was down 6% Q-on-Q and 7% year-over-year to KRW 79.1 billion. This is due to reclassification of some of the subsidiaries expense accounts. And with this impact, removed expense was flat Q-on-Q.

For the marketing expense, despite new game launches that led to higher marketing expense driven by more efficient marketing spend for Kakao Pay and paid content, it was down 8% Q-on-Q and 1% year-over-year to KRW 36.8 billion.

All in all, Q3 operating profit was up 46% Q-on-Q and 93% year-over-year to KRW 59.1 billion, with Q3 operating margin at 7.5%.

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Jae-Hyun Bae, Kakao Corp. - EVP [28]

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(foreign language)

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Unidentified Company Representative, [29]

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[Interpreted] Next is on nonoperating revenue and expenses. First, Q3 other revenue was up 123% Q-on-Q to KRW 30.1 billion, an increase in gains from disposition of shares of equity method companies previously invested by the company. Other expense was up 11% Q-on-Q to KRW 12.2 billion on donations by Kakao Impact, our social philanthropy group. On higher valuation of foreign currency deposits and FX translation gain, financial income was up 126% Q-on-Q to KRW 30.1 billion. Financial expense was down 32% Q-on-Q to KRW 9.4 billion on revaluation of previously booked valuation loss from derivatives.

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Jae-Hyun Bae, Kakao Corp. - EVP [30]

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(foreign language)

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Unidentified Company Representative, [31]

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[Interpreted] Q3 consolidated net income was up 66% Q-on-Q and 597% year-over-year to KRW 51.5 billion with net income margin at 6.6%. For your information, Q3 corporate income tax expense was KRW 37.4 billion with consolidated basis effective tax rate of 42%. However, considering the tax impact from subsidiary losses and difference from tax adjustments, effective tax rate is closer to the statutory rate at 25%.

Lastly, Q3 CapEx breakdown is: per intangible assets, KRW 12 billion; intangible assets, KRW 25.5 billion; with total CapEx at KRW 37.5 billion.

This ends the Q3 2019 business and earnings highlights. We will now take your questions and please, because of the time constraint, we would like to ask you to submit only 2 questions per person.

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Questions and Answers

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Operator [1]

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(foreign language)

Now Q&A session will begin. (Operator Instructions)

(foreign language)

The first question will be presented by [Chang-Young Lee] from Cape Investment & Securities.

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Unidentified Analyst, [2]

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(foreign language)

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Unidentified Company Representative, [3]

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[Interpreted] My first question relates to your TalkBoard business. Last quarter, you've mentioned during the post-beta phase, the daily revenue is around about KRW 200 million to KRW 300 million. Can you share with us what your outlook is and guidance is for your TalkBoard business next year? Second question, do you have any detailed plans regarding the IPOs of your subsidiaries like Kakao Page and Kakao Bank? If so, could you share that information with us?

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Min-Soo Yeo, Kakao Corp. - Co-CEO [4]

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(foreign language)

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Unidentified Company Representative, [5]

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[Interpreted] This is Mason. I'd like to respond to your first question. Despite the fact that we are seeing a significant inflow of the advertisement budget that's coming on to this platform, because the Kakao Talk traffic is quite immense, we are going to adjust based on our strategic judgment, the overall impression and exposure via the TalkBoard. So rather than significantly increasing the unit prices for the advertisement product, we will -- we are going to grow basically the impression traffic as well as the advertiser pool at the same time and gradually grow this business. The overall direction is going to be within the current regime or the framework, and all the things are going well as according to our plan. And so we believe that our original target of attaining about KRW 400 million to KRW 5 billion -- KRW [500] million, excuse me, of sales by the end of the year can be easily achieved. And we will -- even into the next year, we'll try to continue with this trend and as underpinned by our TalkBoard business, this whole ecosystem, we are going to further grow.

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Jae-Hyun Bae, Kakao Corp. - EVP [6]

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(foreign language)

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Unidentified Company Representative, [7]

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[Interpreted] This is Jae. Responding to your question about the IPO of our subsidiary, particularly Kakao Bank, the additional capital increase or rights offering was decided on October 16. And once that whole rights offering process is completed in November, basically the amount -- the size of this rights offering will be about KRW 1.8 trillion and that will have an improvement on our BIS ratio. With respect to additional financing going forward, it could be in the form of an IPO or any pre-IPO preparation or finding of the strategic partners. Basically, we will be looking at those different options. And at this point, the specific timing of the IPO has not yet been determined. It will be subject to the agreement of different shareholders.

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Jae-Hyun Bae, Kakao Corp. - EVP [8]

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(foreign language)

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Unidentified Company Representative, [9]

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[Interpreted] Now for the IPO plan for Kakao Page, at this point, no final decision has been made as to the timing of the IPO. So it would be difficult for me to provide you with that detail. In light of the both internal and external factors, basically our key approach is to make sure that we find the most optimal timing that will help us maximize our corporate value as well as shareholder value. For the time being, we're very much focused on our bottom line profitability and really endeavoring to bring about growth in terms of GMV as well as profitability. Up until next year, we will continuously focus our efforts on expanding our story business so that we may maximize value.

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Operator [10]

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(foreign language)

The next question will be provided by Eric Cha from Goldman Sachs.

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Minuh Cha, Goldman Sachs Group Inc., Research Division - Analyst [11]

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(foreign language)

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Unidentified Company Representative, [12]

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[Interpreted] I would also like to ask a question on your Bizboard. Your ad revenue, basically, your Q3 figure in terms -- if you look at the ad revenue, what's the picture like and also percentage of ads loading -- ad load percentage, can you provide some color there? You're currently taking various different tests, would like to understand what you see as the potential maximum range for your advertisement loading rate. And the second question relates to the Bizboard, would like to understand the leverage effect that your top line revenue has on your profit or the bottom line. Basically, how much of that revenue is going to be reflected on your OP line?

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Min-Soo Yeo, Kakao Corp. - Co-CEO [13]

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(foreign language)

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Unidentified Company Representative, [14]

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[Interpreted] This is Mason. Responding to your second question first on the operating profit impact from our TalkBoard business. As you know, the contribution and ad revenue mix on the OP account is basically the amount after you deduct the ad agency commission, which is around 15%. So that's the contribution made to the OP account from the top line revenue. Responding to your first question on the Bizboard revenue, what the revenue was in Q3 and also the potential -- the maximum range for the ad loading. The Q3 figures were actually better than what we had forecasted. As we began our open beta phase from the third quarter, previously, we had hundreds of advertisers, and we saw that number increase to thousands or 4-digit number of advertisers. So we saw a transitional migration or expansion from a merely a large account advertisers to more of an SME and long tail advertisers coming onboard to our TalkBoard platform. As a result, the ad loading impression actually increased. And so at this point, the actual amount of traffic that TalkBoard uses is only about 15% of our #2 tapped traffic. So we believe that there is quite a bit of room to grow and fill in with more advertisement.

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Operator [15]

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(foreign language) The next question will be provided by Seungjoo Ro from CLSA.

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Seungjoo Ro, CLSA Limited, Research Division - Research Analyst [16]

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(foreign language)

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Unidentified Company Representative, [17]

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[Interpreted] I would like to ask 2 questions. First, I would like to understand some of the indicators regarding your Kakao application. What is the average time spent by your user, especially on the Shop tab? Can you share with us some of the measures like the time spent and MAU? What is the growth trend like on a year-over-year basis? I'm asking this question because I would like to get a more understanding about the usage rate of the nonmessaging side of your business. Second question, we are now seeing improvement in your OP margin trend. Can the management share with us if you have any target that you work by? For instance, next year, would it be possible for us to expect maybe a double-digit OP margin?

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Min-Soo Yeo, Kakao Corp. - Co-CEO [18]

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(foreign language)

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Unidentified Company Representative, [19]

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[Interpreted] Yes, this is Mason. With respect to the figure, the time spent, the user's time spent on Kakao Talk, please understand that we don't disclose or share that information. On the chat room, however, we are seeing a very healthy growth in terms of the message.

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Jae-Hyun Bae, Kakao Corp. - EVP [20]

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(foreign language)

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Unidentified Company Representative, [21]

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[Interpreted] This is Jae. This year, we've seen a very robust growth on our top line from our new business as well as our existing business. And we are also very flexibly controlling our cost items quite well as well. So we sufficiently believe that we will be able to sustain double-digit OP margin, although we won't be able to specify any figure.

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Jae-Hyun Bae, Kakao Corp. - EVP [22]

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(foreign language)

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Unidentified Company Representative, [23]

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[Interpreted] Now if you look at the OP numbers and if you look at Q4 of last year, we recorded a loss of KRW 55 billion. So this is from the new business area. And if we take the same indicator and look at the Q1 of this year, the loss has reduced to KRW 52.2 billion in Q3 to further down to KRW 47 billion -- that was Q2 and in Q3 to KRW 29.5 billion. So as you can see, we are well underway in improving our P&L. Just for your information, if you were to look at our existing business, apart from our new business, Q3 operating profit was KRW 88.6 billion with total consolidated OP at KRW 59.1 billion. Therefore, going forward, we truly believe that Kakao now has a strong fundamentals that will help us generate quite healthy OP margin and increase OP margin going forward.

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Operator [24]

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(foreign language)

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

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Stanley Yang, JP Morgan Chase & Co, Research Division - Analyst [25]

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(foreign language)

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Unidentified Company Representative, [26]

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[Interpreted] I would like to first congratulate you on a record high performance this quarter. I have two questions. My first question relates to your comment about growing your profit. We see that your losses from the new business is narrowing, which is a positive trend. We also -- the market also hopes to see a growth in profit from your existing business and that will, of course, have impact on your operating profit. But if you just look at this quarter, maybe it's because of the heightened level of labor cost. On a Q-on-Q basis, your profit growth from your existing business doesn't seem to be too high. So can you provide some color as to what you believe will be the labor cost trend going forward? And also elaborate a little more about what your forecasts are with regards to profit growth from your existing businesses? Second question is regards your Bizboard business. You've mentioned that you've expanded your advertiser base to long tail advertisers, which means that there will be higher levels of advertisement impressions. But at the same time, we're interested in the trend for pricing. Would this mean that your pricing may actually decline going forward? Or previously, we understand your CPM to be KRW 5,001. Would you be able to maintain this trend or possibly increase the pricing trend? I would like to understand what your next year Talk Biz revenue outlook is like. You previously shared with us that you will be able to bring 50% revenue growth. Are you still standing by that? Also for Bizboard, by the end of the year, December, you're probably looking at about KRW 400 million to KRW 500 million of sales on a daily revenue basis. Do you still maintain that forecast?

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Jae-Hyun Bae, Kakao Corp. - EVP [27]

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(foreign language)

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Unidentified Company Representative, [28]

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[Interpreted] This is Jae. Responding to your question on labor cost, this was driven by higher number of head count starting -- which it started to increase from last year. And also in Q3, there were one-off expenses, about -- of around KRW 15 billion, including the 2 soft bonus payments and the expenses, labor expenses, relating to the annual leave, which drove up the Q-on-Q labor cost by KRW 18.4 billion. Despite such one-off items, we still were able to bring a quarterly operating profit improvement. And we believe that is due to the fact that we were able to bring about a fundamental improvement on our fundamental resilience.

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Min-Soo Yeo, Kakao Corp. - Co-CEO [29]

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(foreign language)

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Unidentified Company Representative, [30]

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[Interpreted] This is Mason. I will respond to your question and your comment about the fact that we're lowering our losses from our new business and also we're growing our business from the existing businesses. And I will also talk about the top vertical.

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Min-Soo Yeo, Kakao Corp. - Co-CEO [31]

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(foreign language)

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Unidentified Company Representative, [32]

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[Interpreted] So when we say existing business, of course, that includes ad, and we've seen a very strong growth from advertisement in terms of the operating profit perspective. But not only ads but we are seeing an even growth from both our commerce, game, music and paid content.

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Min-Soo Yeo, Kakao Corp. - Co-CEO [33]

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(foreign language)

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Unidentified Company Representative, [34]

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[Interpreted] Now on the TalkBoard side, yes, we've seen a significant increase in the number of long tail advertisers. I think this could be explained between the difference of the closed beta and open beta service. During the closed beta period, we had a limited pool of advertisers and so the level of competition for bidding wasn't very fierce. But as we've seen more traffic and more long tail advertisers come onboard, which led to a higher ad loading ratio, we've seen the bidding competition become much fierce. And we, therefore, believe in terms of the eCPM, there is still upside potential.

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Min-Soo Yeo, Kakao Corp. - Co-CEO [35]

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(foreign language)

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Unidentified Company Representative, [36]

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[Interpreted] So after the closed beta phase, we were able to actually prove the viability or the effectiveness of our ad products because we are seeing Kakao -- previously Kakao Moment advertisers, and these advertisers are long tail advertisers. They are making additional use of the TalkBoard. At the same time, we are seeing inflow of new advertisers onto the platform. So we see no sign of cannibalization. There's actually an additional potential for upselling as well as onboarding of new advertisers.

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Min-Soo Yeo, Kakao Corp. - Co-CEO [37]

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(foreign language)

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Unidentified Company Representative, [38]

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[Interpreted] So we expect this trend to continue until the end of the year. So by the month of December, our projection to reach daily revenue of KRW 400 to KRW 500 million, there's high possibility and probability that we'll be able to attain that target. On top of that, by 2020, our original outlook was only 50% from our Talk Biz revenue, which we are at this point quite optimistic about. And with that level of growth, that means Talk Biz revenue will reach KRW 1 trillion.

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Operator [39]

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(foreign language) The next question will be provided by Dong-hee Kim from Meritz.

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Dong-hee Kim, Meritz Securities Co., Ltd., Research Division - Analyst [40]

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(foreign language)

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Unidentified Company Representative, [41]

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[Interpreted] I would like to ask two questions about Kakao Pay. First question is your Q3 GMV, can you give us a breakdown between payment and P2P transfer? You also mentioned that the payment side, especially offline is growing quite well. Can you also share with us the percentage or share of that from the entire mix? And come -- and starting end of October, the open banking was introduced in Korea and Korean commercial banks are very aggressively marketing for this. I would like to understand what Kakao Pay's strategy and direction will be after mid-November.

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Jae-Hyun Bae, Kakao Corp. - EVP [42]

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(foreign language)

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Unidentified Company Representative, [43]

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[Interpreted] This is Jae. Now during Q3, the total GMV was up 14% Q-on-Q, reporting KRW 12.9 trillion. We are seeing across-the-board growth from both payment and P2P transfer. But please do understand that we won't be able to share with you any specific numbers because we will need to adjust our strategy depending on the competitive landscape of the pay market going forward. Now having said that, we are adding new types of services like investments, delivery and insurance services. So we expect the GMV growth trend to be quite solid as we go forward. Recently, however, we are seeing much accelerated growth coming from payment and financial services as opposed to P2P transfer, which we believe is a positive trend.

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Jae-Hyun Bae, Kakao Corp. - EVP [44]

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(foreign language)

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Unidentified Company Representative, [45]

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[Interpreted] Now Kakao Pay has launched to different investment services last year. And on top of that, this year, we expanded into different business models and different products, including easy insurance and also lending products that connect to credit assessment. So we are really working on monetization and adopting different revenue models. Basically, our transfer service is a good starting point for new users to come onboard Kakao Pay and a good starting point for them to expand to other types of financial services. So we now see that Kakao Pay users who first start off with the transfer service, more than actually 70% of them use more than two different financial products, and they've now converted to a user of multi-services. In terms of the payment service, we've expanded our online and offline merchant base, and we expanded our product coverage to include bill payment, delivery and prepaid and debit card, which is becoming a very important revenue source for Kakao Pay. Going forward, we believe that more expanded platform business is going to really contribute to the monetization of Kakao Pay. And we are seeing more contributions being made from, not just the investment service products, but also new launches, including the insurance product and the loan comparison services. Kakao Pay, going forward, will continue to cooperate with different types of partners so that we provide a platform where people could very easily access financial products through way of acquiring, for instance, parallel investment securities and setting up a digital insurance consortium with Samsung Fire & Marine. We are going to also directly design and develop financial products that best befit the characteristics of Kakao Pay so that we can further expand on our revenue and profitability.

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Jae-Hyun Bae, Kakao Corp. - EVP [46]

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(foreign language)

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Unidentified Company Representative, [47]

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[Interpreted] Open banking was adopted on a pilot basis from end of October across the commercial banks in Korea, and Kakao Bank will also start to apply this to some of its traffic starting December. Because Kakao Pay has big volume of transfer or remittance traffic, we do expect there to be cost savings from the adoption of open banking. Having said that, we believe stability and security of the open banking is our number one priority. So we will begin on a pilot basis. And once we really verify its security aspect as well as its ability to process the traffic, we would then consecutively expand our application. From a short run, we believe that we could enjoy cost savings starting beginning of next year. And we also believe that this will help us increase the number of users who use the schedules or automatic top-up service and also increase the activity rate of the users which will eventually lower our firm banking expense.

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Operator [48]

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(foreign language) The last question will be provided by Seyon Park from Morgan Stanley.

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Seyon Park, Morgan Stanley, Research Division - Equity Analyst [49]

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(foreign language)

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Unidentified Company Representative, [50]

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[Interpreted] So just a follow-up clarification question. I understand that for Q3, you've recorded about KRW 200 million to KRW 300 million one-off daily revenue. And so that means that in Q3, the revenue figure, actually, if you calculate that to a simple arithmetic, it amounts to KRW 20 billion of TalkBoard revenue. You've also mentioned that you forecast KRW 400 million to KRW 500 million by the end of this year and that's a daily sales figure. That will generate additional KRW 20 billion. So is that correct? Will we see on top of what you have already achieved about KRW 20 billion more uplift due to the TalkBoard? Is this understanding correct?

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Min-Soo Yeo, Kakao Corp. - Co-CEO [51]

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(foreign language)

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Unidentified Company Representative, [52]

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[Interpreted] This is Mason. Please do understand that we don't disclose specific sales or revenue figure for individual products because TalkBoard is actually a separate ad product we will be able to elaborate or provide you with the details. Having said that, we are seeing a growth -- solid growth from TalkBoard. But basically, not just that alone, we are seeing connected impact in the growth of our ad business solutions and also the uplift in Plus Friends and Notification Talk also. So we see an across-the-board growth that is actually driven by both of -- or the existence of TalkBoard. So we call this the entire Talk Biz representing the entire category. So we see a quite positive impact on that aspect. Having said that, in Q4, as I mentioned before, we are quite optimistic that we will be able to achieve KRW 400 million to KRW 500 million of sales, daily sales, by December. That is something we can -- we are quite optimistic about.

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Eleanor Lee, Kakao Corp. - Manager of IR [53]

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(foreign language)

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Unidentified Company Representative, [54]

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[Interpreted] So thank you. That brings us to the end of our Q3 2019 earnings release call. Once again, thank you for joining us.

[Portions of this transcript that are marked Interpreted were spoken by an interpreter present on the live call.]