Company overview

Kakao (KOSPI: 035720) is South Korea's leading internet conglomerate, built on the foundations of KakaoTalk, the mobile messaging application used by virtually every person in the country. Formed in its current shape through a 2014 merger with Daum Communications, Kakao subsequently pursued an aggressive strategy of spinning off subsidiaries onto the stock exchange, assembling a sprawling group that now includes KakaoBank, KakaoPay, and Kakao Entertainment, among many others.

For a time, Kakao was the defining growth stock of the Korean market — a "national platform" that attracted retail and institutional investors alike. Since its share-price peak in 2021, however, the company has been engulfed in a series of governance scandals and operational crises that have eroded market confidence. Its negligible dividend yield, absence of any meaningful share-buyback programme, and labyrinthine corporate structure have placed it squarely at the centre of the Korea Exchange's "value-up" initiative — a government-backed push to close the persistent valuation gap, known as the Korea Discount, between Korean equities and their global peers.

Business foundations and financial performance

*A platform ecosystem stretched thin*

Kakao's business divides broadly into four segments: platform services (advertising and commerce on KakaoTalk), content (webtoons, music, gaming, and media), financial services (KakaoPay and KakaoBank), and mobility and other operations. KakaoTalk, with more than 47 million monthly active users, functions as infrastructure — a near-universal utility from which advertising, its "Gift" e-commerce service, and emoticon sales generate the parent company's core revenues.

*Revenue up, profits down*

Since 2021, Kakao's revenues have continued to rise, but profitability has moved in the opposite direction. A rapid expansion of headcount and heavy investment in subsidiaries, combined with a global technology downturn and a weakening domestic advertising market in 2022–23, caused operating profit to fall sharply.

Year | Revenue (₩bn) | Operating profit (₩bn) | Operating margin | Dividend per share (₩)

2019 | 3,070 | 206 | 6.7% | 100

2020 | 4,157 | 456 | 11.0% | 100

2021 | 6,136 | 597 | 9.7% | 100

2022 | 7,107 | 384 | 5.4% | 100

2023 | 7,578 | 360 | 4.8% | 100

2024 | 7,610 (est.) | 390 (est.) | 5.1% (est.) | 100 (est.)

*Sources: Kakao annual reports; Korea Financial Supervisory Service electronic disclosure system. 2024 figures are estimates.*

*The shadow of the spin-off strategy*

Kakao's successive flotations of KakaoBank and KakaoPay in 2021 maximised headline valuations across the group. Yet the structure left shareholders in the parent company poorly placed to capture the gains. As growth accrued to the individually listed subsidiaries, the holding company itself suffered a deepening valuation discount — a textbook consequence of the "subsidiary spin-off" model that has drawn criticism in Japan and elsewhere, and that Korean regulators have begun to scrutinise.

Key milestones in the value-up debate

*November 2021 — Peak and fall*

Kakao's share price reached an intraday high of ₩173,000 in June 2021. Tightening government regulation of internet platforms, an antitrust investigation by the Korea Fair Trade Commission, and the broad derating of growth stocks as interest rates rose all combined to send the shares into a prolonged decline. From peak to trough, the stock lost more than 70% of its value, stoking growing anger among retail shareholders.

*October 2022 — The data-centre fire*

A fire at the SK C&C data centre in Pangyo, south of Seoul, knocked out virtually all of Kakao's services for several hours — an unprecedented outage for a platform of its scale. The incident exposed the company's failure to maintain adequate infrastructure redundancy and crisis-response procedures, severely damaging confidence in its operational management. Regulators subsequently tightened oversight of critical platform infrastructure.

*February 2023 — The SM Entertainment affair*

In early 2023, Kakao became embroiled in allegations that it had manipulated the share price of SM Entertainment during a contested takeover battle against rival K-pop label Hybe. South Korea's Financial Supervisory Service launched a stock-manipulation investigation, and in July 2024 Kim Beom-su, Kakao's founder and chairman, was arrested. The episode became the most visible symbol of the company's opaque decision-making and heightened governance concerns among institutional investors.

*September 2023 — Value-up pressure mounts; Kakao stays quiet*

As the Korea Exchange formalised its value-up programme — designed to coax companies into reducing the Korea Discount through improved shareholder returns — pressure mounted on low price-to-book (PBR) companies to act. Kakao's PBR had fallen to roughly 1x. With a per-share dividend frozen at ₩100 for nearly a decade and negligible share repurchases, the company came under heavy criticism. It offered no public shareholder-return plan.

*February 2024 — The programme launches; Kakao lags*

When the Financial Services Commission formally unveiled the value-up programme, financial and industrial companies rushed to announce dividend increases and share-cancellation plans. Kakao remained conspicuously quiet. Market participants widely concluded that meaningful shareholder returns were impossible without first resolving the subsidiary structure and restoring profitability.

*July 2024 — Founder arrested, governance crisis deepens*

The arrest of Kim Beom-su on stock-manipulation charges triggered a fresh sell-off, with foreign investors in particular accelerating disposals. The episode cast doubt not merely on the founder's personal legal position but on the group's ability to normalise its governance and operations.

*November 2024 — Restructuring announced, scepticism remains*

Following the founder's arrest, Kakao unveiled a group-wide reform plan centred on divesting non-core subsidiaries, restructuring around profitable businesses, and reducing headcount. Management also gestured towards improving long-term shareholder value. However, no specific dividend increases or share-buyback schedules were announced, and market reaction was muted.

Key metrics at a glance

Year | Operating profit (₩bn) | DPS (₩) | Payout ratio | Buybacks/cancellations | PBR (x)

2019 | 206 | 100 | ~18% | Negligible | ~3.5

2020 | 456 | 100 | ~7% | Negligible | ~6.2

2021 | 597 | 100 | ~6% | Negligible | ~8.1

2022 | 384 | 100 | ~11% | Negligible | ~2.1

2023 | 360 | 100 | ~13% | Negligible | ~1.2

2024 | 390 (est.) | 100 (est.) | ~11% (est.) | Negligible | ~0.9 (est.)

*Note: PBR figures are approximate year-end market estimates and may differ from reported figures. No material share cancellations by the Kakao parent have been confirmed.*

Controversies and structural weaknesses

*Shareholders left behind by the spin-off machine*

Kakao's aggressive listing of subsidiaries created value at the group level but diluted it for holders of the parent company's shares. As the growth of KakaoBank, KakaoPay, and Kakao Entertainment flowed to those entities' own shareholders, Kakao's ordinary shareholders absorbed the full weight of the holding-company discount. Financial regulators are understood to have begun examining whether structural remedies are needed.

*A dividend frozen in time*

From 2019 through 2024, Kakao paid precisely ₩100 per share every year — a figure unchanged even as revenue more than doubled. When profitability deteriorated in 2022 and 2023, the payout ratio actually rose, creating the paradox of a nominally higher dividend burden against weaker earnings. Critics describe the payment as a "symbolic dividend" that signals indifference to shareholder returns rather than a genuine commitment to them.

*Governance architecture under scrutiny*

For much of its history, Kakao operated under the strong personal authority of its founder. The proportion of independent directors on the board barely met legal minimums, and questions about the effectiveness of the audit committee's oversight were never fully dispelled. The manner in which the decision to pursue SM Entertainment was taken — apparently with limited board deliberation — is widely cited as evidence of structural governance failure.

*A late arrival to the value-up disclosure process*

While many listed Korean companies responded promptly to the Korea Exchange's call for voluntary improvement disclosures, Kakao was a notable laggard. Legal uncertainty and management instability partly explain the delay, but observers suggest that genuine commitment to shareholder returns from senior management has also been in short supply.

Assessment and outlook

Kakao has become the canonical example of a Korean corporate "work in progress" in the value-up debate — a company whose platform dominance is real and durable, but whose governance, profitability, and shareholder-return record fall well short of what its market position might suggest.

On the positive side, the restructuring now under way — shedding non-core subsidiaries, cutting costs, and focusing on the profitability of the core platform — could, over the medium term, restore the earnings power needed to support a credible shareholder-return policy. KakaoTalk's near-universal penetration in South Korea remains a formidable competitive moat that is unlikely to erode quickly.

On the negative side, promises of improved shareholder returns carry little weight so long as governance risks remain unresolved. Institutional and foreign investors applying rigorous ESG criteria will struggle to overlook a governance record that includes a founder's arrest, an unresolved stock-manipulation case, and an audit structure widely seen as inadequate. Until those issues are addressed substantively — not merely with reorganisation announcements — any meaningful rerating of Kakao's shares is likely to remain elusive.

Three conditions stand out as prerequisites for genuine progress. First, governance normalisation: board independence and decision-making transparency must be strengthened before shareholder-return commitments will be believed. Second, a recovery in profitability: with operating margins hovering around 5%, there is simply insufficient cash generation to fund meaningful dividends or buybacks without first improving the core business. Third, simplification of the group structure: reducing the sprawl of partially owned subsidiaries is the most direct route to narrowing the holding-company discount and lifting the parent's PBR above its current level of below 1x.

Until those three conditions are met, Kakao risks remaining what it has become in the eyes of many investors — a powerful platform that has consistently failed to convert its scale into returns for the people who own it.