Kakao Corp

KRX:035720

[Interpreted] Good morning, and good evening. Thank you all for joining today. We will now begin Kakao's Q4 2024 and Annual Earnings Conference Call. [Operator Instructions]

I will now turn it over to Kakao.

[Interpreted] Hello. I'm Jeffrey from Kakao IR. Let's begin with the fourth quarter 2024 and annual earnings conference call. Today, I am joined by Shina Chung, the CEO; and Jayden Shin, the CFO.

Please be reminded that the earning results are consolidated estimates under the K-IFRS basis and are subject to change upon the auditor's review. Also, forward-looking estimates are based on assumptions, so actual results may vary and differ from figures included in today's presentation.

Now we will have a presentation from CEO, Shina Chung.

[Interpreted] Good morning. This is Shina. Kakao Talk has continued to grow as a powerful messaging platform that connects people across the nation. By leveraging Kakao's unique ability to foster relationship, we have successfully developed distinctive business models such as Business Messages and Talk Gift. However, over the past quarters, our growth has been gradually slowing. This is largely due to the nature of our platform where traffic is heavily concentrated around messaging, making it difficult to drive a significant increase in user engagement. As a result, there has been structural limitations in creating new business opportunities.

Moreover, as we enter the era of AI, we recognize that generative AI could fundamentally reshape user behavior in the mid to long term. This year, we believe it is critical to transform Kakao at its core and turn today's challenges and shifts in the industry into new opportunities for growth. To that end, we will introduce new features and services powered by Kakao's proprietary AI technology while also expanding beyond chat-based purpose-driven traffic to a more dynamic and context-rich user experience. By providing new spaces where users can explore content based on their interest, we aim to establish a stronger foundation for increased engagement and activity.

First, Kakao Talk will introduce a new discovery section where users can explore and engage with a variety of content. This section will feature a feed-based format offering diverse content types such as images, videos and short-form media. At launch, the feed will primarily be populated with content from professional content providers. Over time, we plan to expand its scope to include AI-generated content from various AI-powered services within Kakao Talk.

In the long run, we aim to go beyond content discovery and actively support content creation by both general users and professional creators. To facilitate this, we will develop profile structures and creative tools that enable seamless content production. Ultimately, our goal is to foster a business ecosystem where the lines between individual users and businesses are blurred. While many social media platforms already exist, we believe that the social identity reflected in Kakao's discovery section will differentiate itself from other platforms.

For instance, Kakao Talk is a space where users frequently share small moments from their daily lives. Even professional content within this ecosystem can naturally align with everyday context. Rather than simply adopting the approach of existing platforms, Kakao's content ecosystem will evolve in a unique way centered around a distinct social identity that is exclusive to the discovery section.

In addition to the feed-based service, we are planning a variety of features within the discovery section to ensure that users can continuously explore and engage with new content. While it is still too early to disclose specific details about the services, the overarching vision for discovery is to establish a new space within Kakao Talk where users can explore content and entertainment tailored to their interest.

Expanding the context of discovery within Kakao Talk is particularly meaningful in several ways. It allows us to overcome structural limitation that has historically restricted user traffic growth and available in-app space. By increasing monetizable traffic and expanding various type of spaces within the app, we are also unlocking new business opportunities.

To date, Bizboard has remained the dominant advertising product in Kakao Talk with no other large-scale ad solution launched in recent years. As a result, there is still a high reliance on Bizboard for display advertising. With the introduction of discovery, we anticipate the emergence of entirely new advertising formats that have not been explored before. In the long run, we hope to develop new revenue drivers within discovery that can surpass the scale and impact of Bizboard.

Next, I'd like to briefly discuss Kakao's AI service launch plans for this year as well as our recently launched -- announced partnership with OpenAI. Kakao's AI-powered services do not rely solely on in-house AI models. Instead, we adopt a multi-model approach to ensure the best possible user experience while maintaining cost efficiency for each service. Not only do different services utilize different AI models, but even within a single service, multiple models are dynamically routed and applied. This model orchestration strategy is at core of Kakao's AI approach.

Our recent collaboration with OpenAI is particularly significant as it strengthened this strategy by incorporating one of the most advanced AI models available today, further enhancing our ability to deliver optimal AI-driven experiences. This year, we plan to integrate AI capabilities within key Kakao Talk features to better meet users' needs and drive higher engagement. At the same time, we will introduce a variety of AI-powered services across the Kakao ecosystem, starting with the launch of Kanana in the first half of the year. Through these initiatives, we aim to make AI an integral part of users' daily lives, ensuring a seamless and natural experience across our platform.

In the first half of this year, we plan to officially launch AI mate within Kakao Talk. AI mate will interact with users, analyze various requests and provide tailored recommendations, serving as a key entry point that enhances our existing services. To start, AI mate shopping and AI mate local will be introduced in the form of Talk channels with plans to expand their application to other services such as Kakao Commerce and Kakao Map.

AI mate shopping will offer highly personalized product recommendations for both guests and personal purchases, helping to improve conversion rates within Kakao Talk's commerce ecosystem and drive higher transaction volumes. AI mate local recommends various location based on users' request in context, contributing to the growth of Kakao's local services ecosystem by offering more relevant and engaging recommendations. Building on shopping and local, we plan to introduce AI-powered assistance across various verticals throughout the year. Through these initiatives, we aim to strengthen our existing business by leveraging AI to enhance user engagement and experience.

In addition to launching AI-powered assistance, we are preparing to significantly enhance the general research experience through the entire Kakao business ecosystem. Until now, [ search ] within Kakao has been somewhat limited. But this year, we aim to redefine how users find and interact with information. Kakao's upcoming general research service will function similar to some global offerings, leveraging AI to infer contextual meanings from users queries and generate summarized high-quality responses. By doing so, we aim to minimize the users' need to repeatedly research and browse through multiple sources, streamlining the overall search experience.

Despite Kakao's overwhelming traffic volume, users' engagement with search remains relatively low. By integrating AI into both our existing search sharp functions and new services, we aim to establish a more engaging search experience within the Kakao ecosystem. This initiative will help shift our traffic beyond chat-based interactions and create new services for monetization. Through this expansion, we expect to unlock new revenue opportunity while reinforcing Kakao's role as a key platform for information discovery.

Lastly, I would like to briefly explain the co-product collaboration mentioned in the last week's announcement with OpenAI. This collaboration goes beyond nearly just using OpenAI's technology for building Kakao's services and extends to our co-product collaboration, making a significant milestone for both companies.

Kakao is a platform with the largest number of users in Korea, spanning various services such as messenger, commerce, mobility, content and finance. Through this, Kakao has built an in-depth understanding of Korean users. OpenAI on the other hand possesses the most advanced state-of-the-art AI models and extensive experience in the AI development and user interaction through services like ChatGPT and Operator.

Our core product development project will fully leverage the strength of both companies to create synergy. As our collaboration is still in its early stages, there are aspects that require further discussion. So we'll ask for your understanding that it is too soon to reveal the full specifics at this point. However, to provide insights to investors, the overarching direction of our collaboration is to popularize AI services by engaging personalized AI accessible in the everyday lives of Korean users.

The priority focus will be on enhancing user engagement and experience with the ultimate goal of developing an AI agent that similarly integrates across the entire Kakao ecosystem. This AI agent will allow users to interact across Kakao's platform while going beyond simple Q&A functions. By leveraging function calls, the AI agents will be activated throughout various Kakao services, performing complex and hyper-personalized tasks on behalf of users. At this stage, this is the level of detail we can share.

Since both companies are actively working to collaborate with the goal of launching this service as quickly as possible, we will strive to make it available for you to experience within this year. Until now, many B2C AI services have gained popularities as user engage them with -- for entertainment purposes. However, these trends have often been short-lived. And globally, there are still very few examples of consumer-facing AI services achieving long-term success.

Kakao's goal this year is to develop AI services that becomes an integral part of users' daily lives by helping them address a wide range of needs they may not have previously recognized. Rather than AI being a onetime experience, we aim to create services that uses naturally incorporate into their routines. Sustaining the most widely adopted AI services in Korea requires not only continuous innovation but also a variable monetization strategy. This makes our mission particularly challenging. However, we are committed to experimenting and iterating and discovering the right path forward throughout the year, ensuring that AI becomes an indispensable part of AI -- of Kakao's ecosystem.

To build an AI service that reaches a broad audience in a sustainable way requires not only innovation. In the recent years, Kakao Talk has grown by expanding relationships and tool for interaction. As a result, when looking at specifics at Talk Biz advertising commerce, these 2 businesses have maintained a high operating profit margin of over 30% last year, proving the platform's solid profitability.

As mentioned earlier, starting this year, we will expand the context of discovery within Kakao Talk and its various AI-powered services across the ecosystem. By shifting chat-based purpose-driven traffic to a more diverse range of engagement, we aim to broaden user activity within Kakao Talk. Our goal is to increase user time spent on our platform by more than 20%, essentially introducing new services to lay the foundation for reigniting growth of our core businesses. We kindly ask for continued interest and support for our shareholders as Kakao moves forward with a new focus on Kakao Talk and AI-driven growth. Thank you.

Next, Jayden will present the fourth quarter and 2024 and annual financial highlights.

[Interpreted] Hello. This is Jayden. I will run through Q4 and annual financial highlights of Kakao and its subsidiaries. In Q4, consolidated revenue was KRW 1.96 trillion, down by 2% Y-o-Y but up by 2% Q-o-Q. For the full year 2024, annual revenue increased by 4% Y-o-Y, reaching KRW 7.87 trillion. Platform revenue in Q4 was KRW 1.05 trillion, up 10% Y-o-Y and 11% Q-o-Q.

I'll elaborate on the Q4 performance of Talk Biz, Kakao's core business. Talk Biz revenue was KRW 562.7 billion, up 5% Y-o-Y and 11% Q-o-Q. Q4 advertising revenue was KRW 321.2 billion, up 5% Y-o-Y and 10% Q-o-Q. First, Business Messaging has become an irreplaceable communication channel, connecting brands with customers, posting 18% Y-o-Y revenue growth. Its online penetration continues to trend upwards, pushing up the number of active advertisers by 10% Y-o-Y across various sectors, including finance, commerce and fashion. Also underpinned by robust demand coming from users who wish to stay connected to the brand through Talk Channel, the total number of Talk Channel brands increased by 14% Y-o-Y.

Next, Talk display ad was impacted by delayed economy recovery with its revenue down by 2% Y-o-Y. During Q4, we launched the first-ever full screen ad product called profile full view and focus full view in the Friends tab and Open Chat tab, now having the capacity to accommodate even the advertisers who need to run ads for branding purposes. These new products are designed to reach many users and maximize the branding effect, but we are also seeing good conversion efficiency as well and expect there will gradually be higher revenue contribution coming through as we'll build up the marketing success cases.

Next, combined Q4 Commerce GMV reported KRW 2.7 trillion, up 3% Y-o-Y and 8% Q-o-Q. Revenue for Q4 was KRW 241.6 billion, up 4% Y-o-Y and 12% Q-o-Q. Talk Gift over the years has onboarded around 200 global high-end brands on the LuX tab, strengthening its premium lineup. And users are purchasing better-quality and higher-value products, which is driving up the average basket size. Especially at the year-end, we offered the personalized shopping curation and discounts on popular gifts with Q4 self-gifting GMV and Talk Gift posting 20% Y-o-Y growth.

Commerce, excluding gift, upgraded customized shopping experience based on personalized data placed on top segment of the Shopping tab and showcased popular Talk Deal merchandise by each category by setting up separate subtypes that can run full screen promotions, which help strengthen accessibility and detail. As a result, user activity metrics all improved, including search under the Shopping tab, purchase conversion and dwell time, while Talk Store GMV, which was on a downward trend Y-o-Y basis rebounded in November for the first time in the second half of the year. As a referenced, 2024 combined annual GMV of Kakao Commerce came in at KRW 10.1 trillion, up 5% Q-o-Q -- up 5% Y-o-Y.

Moving on to portal revenue. Due to continuing decline in daily average search queries, revenue fell 6% Y-o-Y to KRW 83.2 billion. But compared to last quarter, on the back of high seasonality and higher overall app traffic in December due to media-related issues, revenue increased by 9%. Platform and others revenue posted an increase of 22% on year and 12% on quarter, reporting KRW 403.1 billion.

Under Mobility business for Taxi, we expanded the supply and upgraded the dispatch algorithm, maintaining a high success rate for boarding, thereby leveraging the seasonality effect to its maximum. Also, driver for hire, quick delivery and parking all show robust growth. Thus, Mobility revenue posted a double-digit growth Y-o-Y, and operating profit margin is also improving.

Kakao Pay has sustained the double-digit growth in TPV and revenue while Pay securities recorded a meaningful turnaround with its first quarter profit. Based on robust fundamentals, we plan on driving more than a double-digit growth this year as well, keeping to the top line up trend similar to that of last year.

Next, Content revenue in Q4 was KRW 910.1 billion, down 13% Y-o-Y and 7% Q-on-Q. First, Q4 story business revenue was down 5% Y-o-Y and 7% Q-on-Q, reporting KRW 203 billion. Q4 Piccoma GMV on Japanese yen basis was down 8% Q-o-Q and 4% Y-o-Y, while revenue came down 5% Q-o-Q but was up 2% Y-o-Y. Solo Leveling: Ragnarok, a new anchor IP, was a successful hit. And as strategic titles yielded positive performance, we were able to drive year-over-year rebound.

In terms of cost, on labor cost decline and efficient marketing spend, we regained the profitability on par with previous levels. Annual GMV for Piccoma exceeded once again KRW 100 billion, keeping intact its #1 grossing app title in Japan for 2 consecutive years, sustaining its platform competitiveness in ever-intensifying competitive market.

Next, Music revenue recorded KRW 470.2 billion. On a Y-o-Y basis, due to the high base of album sales by IVE and domestic concert appearances by NCT 127, revenue fell 5.6%. Notwithstanding the album market slump and strong album sales of NCT DREAM and aespa, revenue was flat Q2.

Lastly, Media business saw extended scale back of overall program scheduling, which drove revenue down 25% Y-o-Y. But thanks to increase in number of titles subject to production revenue recognition, there was 35% Q-o-Q increase with Media revenue reporting KRW 73.9 billion.

Next is operating expense. Q4 operating expense was up 1% Y-o-Y and 3% Q-o-Q to KRW 1,852.4 billion. And for year 2024, expense was KRW 7,382.3 billion, increasing 4% Y-o-Y.

I'll briefly run through key noteworthy points related to the fourth quarter expense. Labor cost was down 1% Y-o-Y but up 2% Q-on-Q, reaching KRW 467.2 billion. We maintained conservative hiring expense company-wide, and we sold off certain subsidiaries. The labor cost has been in line with that of last year. Marketing expense was down 1% Y-o-Y and 3% Q-o-Q to KRW 102.8 billion. Over the past year, we carried out the corporate-wide marketing efficiency efforts. And as a result, the share of marketing spend against revenue was capped at 5.2%.

Outsourcing and infrastructure expense was down 23% Y-o-Y but up 3% Q-on-Q, reporting KRW 199 billion. There was one-off adjustment of reclassification of SM Entertainment's revenue-linked expenses under outsourcing infrastructure, which formed the high base and which explains the big decline Y-o-Y. Depreciation and amortization was KRW 246.1 billion, increasing 17% both Y-o-Y and Q-o-Q due to the impact of one-off bad debt expense of KRW 31.5 billion booked by Kakao Pay.

All in all, Q4 consolidated operating profit was KRW 106.7 billion with OP margin at 5.4%. Adjusted consolidated operating profit after considering the one-off bad debt expense was KRW 138.2 billion with OP margin of 7.1%. Operating profit for FY '24 was up 6.6% Y-o-Y to KRW 491.5 billion, and OP margin posted 6.2%. Annual operating profit after adjusting for one-off bad debt expense in Q4 came in at KRW 523 billion, which is an increase of 13.5%, while OP margin was 6.6%, improving 0.5 percentage points year-over-year.

Under Kakao separate basis financial statement, which includes ads, commerce and AI, Q4 operating profit was KRW 127.1 billion, and OP margin came in at 18.4%. Separate basis full year operating profit was KRW 496.5 billion, and excluding operating losses from the AI businesses, which was included since last June, annual OP would be KRW 558.6 billion, up 4.8% Y-o-Y.

One particular point to note under the nonoperating loss is that we ran a year-end asset review, recognizing goodwill impairment of KRW 226.6 billion, mostly arising from the Content business. There was KRW 125.5 billion of goodwill impairment from both production studios under Kakao Entertainment, and including SM Entertainment-related goodwill impairment, there was of KRW 94.3 billion booked as impairments. Also, after conducting impairment review on invested securities, we booked KRW 80.8 billion in equity method impairment loss on securities with Q4 nonoperating loss recording KRW 415.3 billion.

In Q4, there was a corporate tax reversal of KRW 31.6 billion. And annual tax expense incurred was KRW 176.3 billion. As a result, in Q4, net loss was KRW 276.9 billion, and annual net loss stands at KRW 43.6 billion.

Lastly on CapEx. Total CapEx for Q4 was KRW 100.7 billion with KRW 65.3 billion for tangible and KRW 35.4 billion for intangible assets. On a Y-o-Y basis, CapEx decreased by KRW 132.8 billion due to high base effect from the construction of an in-house data center last year. On a Q-o-Q basis, CapEx was up by KRW 12.1 billion due to increased investment in intangible assets related to content IP. On an annual basis, CapEx for 2024 was KRW 499.4 billion, comprising KRW 374.6 billion and KRW 124.8 billion CapEx spend for tangible and intangible assets, respectively. Due to the high base effect from the data center construction, annual CapEx fell KRW 222.9 billion year-over-year.

Lastly, I'd like to share our key financial strategy direction for this year. Building on our approach from last year, our top priority remains efficient resource allocation based on strategic priorities. We'll continue to exercise disciplined cost management by aligning spending with business importance while simultaneously optimizing noncore operations. At the same time, we'll actively invest in AI, a critical driver of sustainable growth for our core businesses centered around Kakao Talk to ensure long-term competitiveness and innovation. In addition, we have maintained a conservative stance and recognize uncertainties within hit-driven businesses.

Following our reassessment of goodwill-related assets across the entertainment value chain, we believe that most of the uncertainties in nonoperating expenses have now been effectively addressed. With the impairment review of entertainment-related goodwill largely completed, our net income attributable to controlling shareholders returned to profitability last year, and we expect to see a continued reduction in earnings volatility in this area. As a result, we anticipate a clear and sustained improvement in net income starting this year. As I stated, when I assumed my role last year, enhancing Kakao's ROE remains a key priority, and we will continue to focus on driving long-term value creation for our shareholders.

This ends our earnings presentation for fourth quarter 2024 and analyst conference call. We'll now invite all questions. [Operator Instructions]

[Foreign Language] [Operator Instructions] The first question will be provided by Lee Dongryun from Macquarie Securities.

[Foreign Language] [Interpreted] Lee Dongryun from Macquarie Securities. I would like to get some color on what the company's growth strategy is with regards to your core businesses, which are ad and commerce. So first on the advertisement business, what is the advertisement industry or market outlook in general? And also with the new services that you will be launching, what is the extent of its contribution to growth? And what is your growth target for your ad business? Also the same question on your commerce business, what is your take on the market outlook? And what is your growth target?

[Foreign Language] [Interpreted] This is Shina. I will respond to your question regarding the industry or market outlook for advertisement and commerce and also shed some light on Kakao's growth strategies. If you first take a look at the advertisement market outlook, for Korea, there has been a quite conservative GDP growth outlook for this year as well. And if you look at the advertisement industry as a whole, it's an industry that is quite highly cyclical in terms of sensitivity. So it's not very easy to foresee an all-out recovery in the short term. And even if further deterioration is limited in terms of domestic demand and consumer sentiment, the economic confidence overall has slowed. So it is not easy based upon our assessment for advertisers to be aggressive in terms of marketing budget or marketing spend in the first quarter.

So now looking at Kakao, under such challenging environment, Business Message, basically, we believe, is going to be able to come up with a double-digit growth, which will overall be driving the advertisement business growth. All of the efforts we put in, in the first half is going to be towards revamping Kakao Talk. And it will bring, we expect, higher traffic and new business opportunities in the second half of the year, enabling a growth turnaround. That is our goal.

Now looking at Kakao's products one by one. Basically, first, our goal for Business Message is double-digit growth this year as well. And we are scaling up, targeting logic so that we can send targeted messages to users who may like certain advertisers' messages. Also, we are improving template to deliver high-quality creatives and messages. And we expect that this will drive healthy user response rate and advertiser efficiency as well as support sustained growth.

Now we expect while high growth in Business Message continues, as Kakao Talk traffic transforms to discovery driven, display ad is going to directly benefit from this trend. And after the launch of discovery section, as I've previously mentioned, and one final service format and usability is determined, we will come up with a display ad of different sizes and format befitting new service context and usability. And this will be a new opportunity for growth, which has slowed after the Bizboard launch. Also by introducing search ad and commerce ads, which are powered by AI search and AI generated content, we can take on a new challenge and look into new business domains that were considered to be difficult attempts in the past.

So this will enable a double-digit growth in Talk Biz in the second half of the year, outperforming the online advertisement market growth of around 5.1.

Now moving on to your question relating to our commerce business. First, the overall e-commerce market trend. Basically, if you look at Q4 online shopping GMV, we've seen only about a year-over-year increase of 1% due to the contraction in the consumption sentiment as well as economic uncertainty actually being -- becoming a major social issue. But we see a dichotomy between consumers who really focus on price in terms of the necessities that they need versus the premium product where personal satisfaction is considered very important.

Now at Kakao, our plan basically is to deliver most optimal services, responding to changing commerce market and spending pattern of the consumers and drive margin and volume growth through asset-light strategies. So under this approach, this year, basically, our objective is to achieve revenue and GMV growth on par with what we've seen last year.

Now first, if you look at Kakao Talk Gift, we had stronger promotions and personalized curation of gift based on data of that individual's wish list and their brand of interest. And this resulted in 24% year-over-year growth of self-gifting, buying the gift for one's own consumption, driving the overall Talk Gift GMV. This year, we will strengthen gift lineup that is well differentiated and incorporate AI mate shopping service so that we may expand on the discovery-driven commerce GMV inside the Gift Talk.

We also plan on scaling up AI mate shopping service introduced through the Talk Channel and web service end of December, enabling better discovery and recommendation of gifts optimized for different situation and relationships. Thus, we will continue to upgrade personalized shopping curation. And in February, we plan to add another shopping entry point for AI mate inside Talk Gift service, enhancing accessibility so that AI mate can be a personal shopper. This means AI and Kakao Commerce will help remove headaches about which gift to choose, maximize service satisfaction and directly benefit purchase conversion and higher GMV.

For e-commerce in general, ex Kakao gift, we will revamp Shopping tab within the year, diversify the scene where brands and products that cater to personal taste and interest can be searched and discovered more easily. And we will fine-tune personalized shopping curation using data that is all -- spread all over Kakao Talk platform. We will go beyond simple photos and text, and pivoting on Shopping Live, we will expand into videos and participatory content in order to drive up user engagement and time spent.

[Foreign Language] The following question will be presented by Kim So-Hye from Hanwha Investment & Securities.

[Foreign Language] [Interpreted] My questions relate to your guidance for this year. First, what is your first quarter revenue guidance? And also on an annual basis, to the extent that you could share, I would like to know as to what you're guiding us in terms of revenue, cost and profit.

[Foreign Language] [Interpreted] Yes. Responding to your question about our outlook for the first quarter, this is the CFO. Now typically, basically, the steady revenue that we had from Content business, we usually offset the slow season from the Platform business. Now having said that, for Q1 of this year, coupled with the slow seasonality as well as the fact that in terms of the content, our IP cycle is at its bottom, we think that the overall backdrop for consolidated revenue is going to actually deteriorate. And also considering the continuous uptrend in the fixed cost, we believe that this is going to also work as a big drag on the Q1 profitability.

Now having said this, I believe that the drag on our earnings for Q1 is going to be short-lived. I say that because starting the second quarter, the key revenue streams for Talk Biz, which are Business Message and Talk Gift, they're continuing on with a solid growth trend. And also in the ad market, the positive seasonality is going to come back. And also, many of the businesses under our Platform business is all going to enter into high seasonality when we -- during the first quarter. So we're looking forward to a quite steep improvement in terms of profitability.

Now moving on to the guidance for the -- on an annual basis. First, our core business is Talk Biz. We believe that in the first half of the year, we're expecting about a moderate growth because we're focusing on preparing for the discovery, expanding the discovery scene and also preparing for AI-driven services. But starting the second half of the year, on the back of launch of new services, we believe that we're going to see the financial results start to materialize supported by stronger fundamentals. And we think the advertisement will be able to regain a double-digit growth. Fueled by all of these elements, we believe that the overall Talk Biz annual revenue will be able to attain the growth level that we've seen previous year. That is our internal target.

Now if you look at our Content business in the first half of the year, due to the lack of new IP lineup, the adverse impact had actually deepened. And I think this is going to weigh down on the further slump. We admit that there needs to be improvement on the financials of our Content business. So this year, rather than focusing on reckless expansion, we're going to really focus on the core so that we can strengthen the basis of growth. Considering the inherent characteristics of the so-called box office business, it's highly dependent on the cycle of the IP as well as whether a search in IP becomes a successful hit. So admitting that, we do expect that there's quite a bit of uncertainty that still persists, and it is not going to be an easy market environment to work through.

Now let me also guide you on our operating expense. We're going to continue to be quite conservative in terms of spending. If you look at labor cost, there has been a year-over-year slight increase about 1.4%. This year also, we are projecting about a similar level of marginal increase on a year-over-year basis or Y-o-Y flat. In terms of marketing spend, we are going to make sure that we can keep it at around 6% level against the consolidated revenue. But for sustainable growth into the future, we're going to continue to see more investment into AI and data centers. So we expect that in terms of outsourced infrastructure and depreciation, there will be an increase compared to the previous year.

So in terms of operating profit for us, what's very important this year is to really focus and strengthen the fundamentals as the basis for growth. If you look at Platform business, which explains most of the profit that we are generating, we believe that after Q1, we will be able to regain the growth trajectory. And in the second half of the year, by leveraging off of the growth levers that we are able to identify through various different initiatives, we believe that we will be able to speed up the growth rate of Talk Biz supported by the fundamentals. As such, our consolidated basis operating profit will show a pattern of low in the first half and high in the second half.

So this year as well, in order for us to secure a mid- to longer-term growth engine, we're going to be very selective in making the essential investment and really solidify cost efficiency so that we will be able to improve on the profitability of the business compared to the previous year.

[Foreign Language] [Interpreted] We're running out of time. We will take the final question.

[Foreign Language] The last question will be presented by Lee Sunhwa from KB Securities.

[Foreign Language] [Interpreted] Thank you very much for sharing Kakao's vision and your strategic direction forward. My questions relate to the AI-related new business of Kakao. You also mentioned this during the presentation about your AI service launch. It would be helpful if you could provide more color in terms of time line for your Kanana's external, I guess, introduction because you did mention that you're going to go through a closed beta test. And what would be some of the functions and features that's included?

And also for you to strengthen your AI competitiveness, what is your CapEx plan in terms of investing and purchasing GPUs? And my last question is that with the launch of DeepSeek, which is open source, would like to know as to what Kakao's take is of this trend. Are you planning on actively incorporating such open-source technology into your services?

[Foreign Language] [Interpreted] Yes. Responding to your question about Kanana, we are planning on public CBT for Kanana in the first half of the year. Basically, we ran in-house CBT in January, and we're currently making some improvements and enhancement functions based on the feedback that we received from our crew. Most AI services that's currently out there are based on one-on-one interaction between the user and the AI, but Kanana enables interaction between multiple users and Kana, which is the AI mate in the group chat room. And this, we believe, will be able to provide a differentiated user experience.

Following the CBT launch, we will be collating user feedback so that we can make appropriate enhancements and improvements. We will also be adding various features and functions on top of chatting interaction so that we can evolve this into hyper-personalized relationship-based group community AI services. Beginning with Kanana, we will actively launch various B2C AI services inside our ecosystem.

In terms of our investment into GPUs, if you look at last year, on a per year basis, Kakao invested about KRW 55 billion. That is with regards to GPU investment. And we are, at this point, planning on a similar level of CapEx spend on GPUs. Now when Kakao Brain was a stand-alone entity, it really actively made LLM development and also made quite a bit of investment into GPUs. But after Kakao Brain's business transfer, it's focusing more on smaller language models and model orchestration strategy to be cost efficient and be competitive. So GPU investment is at much more efficient levels now, and we expect that this level is going to continue.

Now in terms of the model -- functional enhancements of open-source models, including DeepSeek, such improvement of various different open-source models, they are positive news from Kakao's perspective. But that does not mean that such functional enhancement of open-source models immediately mean popularization of consumer-facing AI services that which Kakao is seeking or is providing.

If you look at DeepSeek, it is meaningful to see that there's been fast model performance scaling up of it. But in terms of services, there are still many aspects that need to be dealt with, for instance, AI safety. So we think that there exists this constraint for these types of models to be widespread -- will be widely used at this point in time. In order for an actual open-source model to be widely used, there needs to be additional form of investment into, for instance, AI safety-related aspect. So it is still questionable whether these models could be taken as is to immediately bring cost savings.

Now, however, already starting last year, Kakao has been owning Kanana Flex model, which basically is an internalized version of multiple number of global open-source models that we have tuned, including Llama. And we have been actively utilizing this in the service offerings that we have. And so we've been able to build up quite a bit of know-how in terms of model orchestration. So this fact, I think, really goes to show that such development on the open-source arena really works as a positive news for Kakao.

So starting with the global models, which underwent tuning and also our self-developed SLMs as well as through the collaborations we have with OpenAI, we now have secured even the SOTAM or state-of-the-art models. And so from a CapEx and cost efficiency perspective, we will be able to use the most efficient way for -- and also have achieved the model orchestration strategy -- the completion of the model orchestration strategy that would be applied to our B2C AI services.

Kakao is the ecosystem, and it provides a service that is most frequently used by all of the people in Korea that really touches various different domains and scenes of our daily lives. And by utilizing the relationship, the context, the objects that actually are interacted within this ecosystem between and amongst the users, we have the unique competitive edge of being able to come up with the most personalized AI that best understands the users. So from a user's perspective, it will be better for them to really accustom themselves to these AI services that really understands that individual, and we believe that these types of approach can be effectively applied to other form factors and other B2C services through the mobile device.

Now not only that, in order for this to become an AI service that's used by everyone in Korea, it's very important that we satisfy the essential requirement of AI safety. So from the very onset of service development, we've planned and designed with a strong focus on AI safety so that anyone can use AI services in a safe manner. So this year, taking the ecosystem that spans all of the aspects of individual's daily lives and based upon our in-depth understanding of the user base, we are going to attempt to come up with Korea's best AI technology and to popularize that into the best AI services.

[Foreign Language] [Interpreted] This brings us to the end of 2024 annual and fourth quarter earnings call. Thank you very much, everyone, for joining us this morning.

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