Kakao Seeks Breakthrough Amid Dual Blows: AI Slump and Historic Strike

Kakao is grappling with a double blow, facing both a slump in its AI business and its first-ever strike since its inception. The company is seeking a breakthrough amidst falling corporate value and increasing debt, finding itself in a complex crisis exacerbated by labor-management conflict. A prolonged labor dispute could hinder efforts to reorganize its structure and personnel to adapt to market changes.

Past strategies of aggressive expansion through mergers and acquisitions (M&A) and spin-off listings have shown their limitations. While Kakao has recently entered high-intensity restructuring, including the sale of Kakao Games, analyses suggest it has become bloated in size without innovating its core business or achieving substantial profit improvement. Despite asset growth, revenue growth has stagnated, leading to decreased utilization of its existing assets.

According to the Z-score analysis by Korea Financial Newspaper, Kakao's financial health has gradually declined from a 'safe zone' in 2021, entering a 'distress zone' in the first quarter of this year. This is due to excessive debt burden, as its market capitalization has more than halved while total debt has surged by 45%. Total debt increased from 9.2162 trillion won in 2021 to 13.3823 trillion won in the first quarter of this year.

Criticism has arisen that Kakao's response to the global AI paradigm shift has fallen short of market expectations.

Liquidity indicators, which show short-term financial flexibility, have remained robust. The 'Working Capital/Total Assets' ratio showed a recovery trend, increasing from 0.11 in 2021 to 0.15 in the first quarter of this year, indicating that the company is free from immediate pressure from short-term debt obligations within a year. The 'Retained Earnings/Total Assets' ratio also recorded a slight improvement, standing at 0.10 during the same period.

Kakao Investment has recently been sequentially selling its stake in Dunamu. Through these stake sales, it has secured approximately 2 trillion won in funds, providing an opportunity to prepare for management uncertainty and secure resources for future investments.