Kakao Stock

We will begin Kakao's 2026 Second Quarter Earnings Conference Call. This conference will start with a presentation followed by a divisional Q&A session. [Operator Instructions] I will now turn it over to Kakao.

Hello. I'm Jeffrey from Kakao's IR. We will now begin the conference call. Today, I am joined by Shina Chung, the CEO; and Jayden Shin, the CFO.

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. Also, forward-looking estimates are based on assumptions so actual results may differ from figures included in today's presentation.

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

Good morning. This is Shina, CEO of Kakao. In the Internet and mobile areas, the tension economy focused on capturing users' attention primarily through advertising was a key theme. In the coming era of Agency I, however, we expect the full scale shift towards intention economy, where new value is created in the process of understanding users' intent and compaction.

Amid this major transition, Kakao's aims to make Agency AI user experience habit. Kakao plans to provide a new form of agency AI experience that identifies users' intent within the context of their conversations recommends various types of actions based on the identified intent and enables agents to carry out of those actions on their behalf. In particular, our goal is for this use of AI, not to remain a onetime experience but to become a new user habit that is repeated in everyday life.

As the first step in delivering a new agentic AI experience, we continue to actively enhance the on-device AI model but we have consistently emphasized, enabling banks to capture not only express intent, but also intend to embedded within conversational context, while further deepening their overall understanding of the users. Our recently introduced Kanana 2 1.3B model delivers earlier performance compared with global open source models in areas that are essential firm operating real-world AI services. including conversations, knowledge, instruction following and to calling despite a significantly smaller parameter size. This slight weighted model is already being used across Kakao's AI services, including Kanana and KakaoTalk, Conversation Summary, Whole Summary and the AI National Secretary.

We have also open sourced the motor on Hugging Face, making it available for anyone to download and run. At the same time, we are continuing to enhance the long-term memory capabilities of our own device AI models. With this enhanced long-term memory capabilities, Kanana and KakaoTalk will move beyond understanding on new segments of conversations. Instead, it will understand user schedule and interest gathered across multiple conversations within a single context, enabling it to identify users' intent with a greater equity. Furthermore, the longer users engage with Kanana and KakaoTalk, the more their behavior patterns and preference accumulate, enabling us to deliver increasingly personalized services.

As we continue to enhance our ability to understand users' intent, we believe that the key factor in making the new AI experience habit is how far we can expand agency actions that lead all the way to real-world actions and transactions across users' everyday life. Kakao has prioritized partnerships with top tier players in verticals, the users engage with frequently in their daily lives, and where AI agent suggestions and recommendations can naturally lead to real actions and transactions.

Among those verticals, the first to be integrated into Kakao's Agency AI ecosystem is food delivery. And today, we are announcing our A2A partnership with [ Coupang ]. Once Coupang is connected to Kanana and KakaoTalk through an agent-to-agent integration, the on-device AI model with KakaoTalk will identify users' intent to order food based on the conversational context, recommend many items based on the preference it has accumulated over time. and enable users to complete the entire ordering and payment process naturally within the chat room.

The 2 companies are currently engaged in detailed discussions across multiple areas to ensure that agency experience within Kakao can lead all the way to actual transactions, and we plan to bring the services to market in the near future.

At first glance, this may appear to be simply additional food ordering feature within KakaoTalk. However, we believe it is meaningful because it represents the first step towards establishing a new user habit, where AI understands the user intent connected to real world actions and helps users complete the recurring everyday test through AI.

Building on this, Kakao's AI ecosystem will expand into verticals that users engage with frequently in their daily lives, including commerce, preservations, travel and payments. Across these verticals, we aim to build compelling reference cases through direct partnerships with players that occupy the top of consumers' minds in Korea.

At the same time, we also plan to actively leverage PlayMCP to expand the ecosystem more rapidly. Today, PlayMCP already hosts more than 3,400 MCP tools, generating over 100,000 calls per day. Just as a store grew in the early days of mobile era, not only through major apps but also through a wide range of everyday apps created by individual developers. The MCP ecosystem is likewise expanding to include MCP tools provided by both large enterprises and independent developers. We plan to identify the capabilities that we believe can become part of users' daily lives and integrate them into Kanana and KakaoTalk, thereby expanding both the scope and the value of AI agent within KakaoTalk.

At the same time, by connecting Kakao's established authentication system and secure payment infrastructure, we aim to build an ecosystem that is both stronger and faster to scale. In the second half of the year, we are preparing to gradually introduce new agency AI experiences within KakaoTalk. In the mobile era, the dominant phase was the GUI, where users navigated 6 screens and manually. As we enter the AI era, however, the interface is evolving into the LUI, or language user interface, where users interact with agents through natural language such as text and voice.

Kakao Talk already has an LUI based communication channel in the form of chat room where users and messages and images to their friends. This makes it possible to transform the chat room into the prom interface, where users can simply make requests to AI agents or easily create their own AI skills. In addition, we plan to expand AI interactions beyond text, so the users can also communicate with AI through voice, just as they do with a real colleague. Building on the reliability that KakaoTalk has maintained over the years, we will continue to evolve the platform so that you can simply support everything from authentication and permissions to memory, AI tools, payments and connections between agents.

In the second half of this year, while pursuing multiple [indiscernible], and we expect the number of monthly active users who begin engaging with AI services within KakaoTalk to exceed $10 million by end of the year.

Looking at our second quarter results. the strength of Kakao's platform competitors drove growth across the platform business from advertising, e-commerce and mobility and pay. As a result, profit growth outpaced the revenue growth. with both consolidated revenue and operating profit reaching record quarterly highs. This demonstrates that the stable growth and profitability of our existing platform business are providing us with a solid financial foundation to continue making efficient investments in AI.

In the era of agentic AI, the key competitive omit will no longer be who build a better model. but who can most naturally embed AI into users everyday lines and connect it through real-world actions. In this new competitive landscape, Kakao is well positioned to deliver the best agentic AI experience, having already established a strong user touch points and the broad service ecosystem.

When starting both the direction of our AI strategy and the speed of execution, we expect to establish the foundation for the mass adoption of AI. By the end of this year, and begin meaningful monetization starting next year. As we have previously shared, in addition to transaction fees from agentic e-commerce and subscription revenue from AI services, we also expect the new category of AI advertising revenue, something that Kakao has not had before, to begin contributing in earnings. By 2028, we expect AI-related revenue within Kakao Talk Biz to expand rapidly into double-digit percentage of top base revenue, making AI both the key driver of renewed top base growth and one of our major revenue streams.

Kakao transforms everyday life in the mobile era. Kakao is now pioneered in the AI era as the first mover, leading the mass adoption of AI so that everyone can have their own AI agent. Throughout this transformation, AI is not only a onetime initiative for Kakao but the foundation of our sustainable growth. That is why we are designing the future with safety as our top priority. Building on the many initiatives and investments we have made over years, we will continue to introduce innovative AI services set by established AI as a new growth engine and ultimately enhance shareholder value. We sincerely appreciate your continued support.

Next, Jayden, our CFO, will present the 2026 2nd quarter financial results.

Hello, this is Jayden. I will now present Kakao's consolidated financial results for the second quarter. Consolidated revenue for the second quarter was KRW 2.099 trillion, up 9% Y-o-Y and 8% Q-o-Q. Platform revenue reached KRW 1.230 trillion, growing 17% Y-o-Y and 7% Q-o-Q. First, revenue for Talk Biz, Kakao's core business, was KRW 643 billion, up 12% Y-o-Y and 2% Q-on-Q. Second quarter Talk Biz advertising and subscription revenue reached a quarterly record pie of KRW 400 billion growing 14% and 11% Q-o-Q.

Starting with Business Message. Revenue grew 20% Y-o-Y supported by solid demand from financial advertisers. Advertisers that previously use messages mainly to deliver information are increasingly expanding their use of messages for marketing purposes. As a result, total message volume continues to rise, and we expect revenue growth to remain solid throughout the second half.

Moving on to display ads. Following a revenue classification this quarter, I will discuss Talk DA and network ads separately. Talk DA, which covers display ads served within KakaoTalk grew 28% Y-o-Y. Growth was driven by higher user activity centered on feed-based services and solid performance from new ad products. For reference, on the same basis, Talk DA grew 19% Y-o-Y in the first quarter, indicating that growth accelerated further Q-on-Q.

In the second we plan to further expand commerce-related ads and diversify our ad products to capture demand from a broader range of advertisers. Due to these efforts, we expect to continue attracting new advertisers while encouraging existing advertisers to increase their budgets. By contrast, network ad revenue, which covers inventory outside KakaoTalk declined 45% Y-o-Y. This was due to lower traffic on certain platforms and changes in advertising strategy. In the second half, we plan to strengthen the revenue base by expanding our product portfolio and diversifying our media partners. Beginning next year, we expect revenue to gradually recover and return to a stable growth trajectory.

Moving on to commerce. Second total commerce GMV was KRW 2.7 billion up 9% Y-o-Y but down 5% Q-o-Q. Talk Gift maintained solid growth by strengthening its product lineup in luxury beauty, food and baby and kid categories. while expanding promotions to capture demand during Korea's family month in May. As a result, GMV for all key gifting occasions reached record highs. As mentioned last quarter, expanding self-purchases is one of Talk Gift's key growth initiatives this year. In the second quarter, self-purchase GMV grew 39% Y-o-Y, along with an inflow of new users purchase frequency among existing users also increased confirming the effectiveness of our strategy. Self purchases currently account for around 20% of total takes GMV. Given the significant room for further growth, we expect self-purchases to remain a key driver of Takis growing going forward.

For Talk Store, we made promotions more regular and expanded collaborations with major brands to increase user visits and purchase frequency. As the number of buyers, payment transactions and average order value all increased GMV grew 7% Y-o-Y. Commerce revenue recorded KRW 243 billion, up 10% Y-o-Y. Growth was driven by higher GMV at Talk Gift and Talk Store, strong 1P sales and the recognition this quarter of a portion of GMV from the Shopping Festa held in March. Commerce revenue declined 10% Q-o-Q, reflecting the high base from Lunar New Year demand in the first quarter.

Platform and other revenue reached KRW 587 billion, up 22% Y-o-Y and 12% Q-o-Q. Starting with mobility, solid performance from existing business was complemented by strong growth in last-mile logistics. As a result, both revenue and operating profit continued to grow at a healthy pace. For Kakao Pay, financial service revenue grew significantly, supported by increased trading activity in both domestic and overseas equity. Payment and Platform Services also maintained double-digit growth, enabling Pay to achieve record high quarterly revenue and operating profit.

Moving on to the Content segment. second quarter content revenue was KRW 868 billion, up 1% Y-o-Y and 10% Q-o-Q. First, Story revenue was KRW 211 billion, down 16% Y-o-Y and broadly flat Q-on-Q. Piccoma revenue in yen declined 9% Y-o-Y as a slowdown in Japan's manga market continued. The second quarter includes Golden Week, Japan's major extended holiday and the mega market go signal seasonal peak. During this quarter, Piccoma carried out active marketing activities to mark its tenth anniversary and introduce new short-form animated video content. As a result, Piccoma maintained its #1 position in gross revenue across Japan's overall ad market, both in the second quarter and for the first half of 2026.

In the second half, Piccoma will continue sourcing high-quality titles and strengthening its lineup to enhance the competitiveness of its core business. At the same time, it will work to build traction for its newly launched short-form animation and merchandise businesses. Through these efforts, Piccoma will expand its business across the full IP life cycle in and distribution to downstream IP commercialization while developing new growth drivers.

Meanwhile, Kakao Entertainment Story business saw slight Q-on-Q increases in both domestic platform GMV and revenue. This was supported by visible results from its strategy of expanding popular web novel IPs into webtoons. Next, Music revenue reached KRW 558 billion, up 8% Y-o-Y and 15% Q-on-Q. Y-o-Y growth was driven by expanded concert activities by major artists together with higher MD and licensing revenue. Q-o-Q growth was driven by increased album sales and MD revenue following comeback by anchor artists, including [ SBA ] and [ NCT Wish ]. Lastly, media revenue was KRW 99 billion up 5% Y-o-Y and 7% Q-o-Q, reflecting an increase in the number of titles under production.

Next, regarding operating expenses. Second quarter operating expenses were KRW 1.821 trillion, up 6% Y-o-Y and 5% Q-on-Q. Labor costs increased only 2% Y-o-Y as we maintained a conservative hiring step. They remain broadly flat Q-on-Q at KRW 448 billion. Marketing expenses reached KRW 97 billion, up 22% Y-o-Y and 33% Q-o-Q, reflecting expanded marketing activities at Piccoma and Kakao Pay. For reference, marketing expenses accounted for 5% of consolidated revenue in the second quarter.

Cost of revenue was KRW 746 billion, up 10% Y-o-Y and 6% Q-o-Q. This was due to higher production costs following expanded activities by major music arts. Despite continued growth in infrastructure demand, we are effectively managing cost increases through efficient investment and operations. As a result, outsourcing and infrastructure costs increased only 2% Y-o-Y and rose 7% Q-o-Q to KRW 223 billion.

Depreciation and amortization expenses were KRW 192 billion, down 8% Y-o-Y and 3% Q-o-Q. The decline reflected the base effects from content lines license amortization and one-off bad debt expenses. Consequently, second quarter consolidated operating profit was KRW 277 billion, up 36% Y-o-Y and 31% Q-o-Q. The operating margin was 13%, improving by approximately 3 percentage points Y-o-Y. For reference, stand-alone operating profit for the second quarter was KRW 126 billion, up 17% Y-o-Y. The stand-alone operating margin improved by approximately 1 percentage point to 18%.

Moving on to nonoperating items. Second quarter nonoperating income was KRW 87 billion increasing by KRW 51 billion Y-o-Y, reflecting a gain on disposal from the sale of [indiscernible]. On a Q-o-Q basis, nonoperating income decreased by KRW 34 billion due to lower equity method income and lower dividend income following the disposal of investment stakes. Second quarter consolidated net income was KRW 18 billion. The gap between operating profit and net income this quarter was attributable to a one-off loss from discontinued operations arising from the process of simplifying our governance structure as well as income tax expense. These items should be viewed separately from the operating performance of continuing operations.

Profit before income tax from continuing operations was KRW 364 billion. After reflecting the one-off income tax impact, consolidated net income from continuing operations was KRW 199 billion. Lastly, total CapEx for the second quarter was KRW 188 billion. This consisted of KRW 165 billion in PP&E and KRW 24 billion in intangible assets. CapEx increased by KRW 89 billion Y-o-Y billion Q-o-Q as server purchases required for the full year were concentrated in the second quarter.

This concludes the presentation on the second quarter earnings of 2026. We will now proceed to the Q&A session. [Operator Instructions]

[Operator Instructions] The first question will be provided by Eric Cha from Goldman Sachs.

[Interpreted] I would like to submit 2 questions this morning. I understand, and also you've mentioned this in your opening presentation, in order for you to actually create an AI-agentic-based ecosystem, you were planning on partnering up with external vertical service players -- but compared to the schedule that we shared with us and during the previous earnings call, it seems like there has been a bit of a delay. I would like to know as to why that is the case? And can you also update us on where the status is at this point? And if you could lay a possible launching schedule going forward, that would also be very helpful.

My second question relates to in ChatGPT in Kakao. So I would like you to share with us some of the user metrics and engagement metrics and what your strategies are going forward to improve those metrics. .

[Interpreted] This is Shina. I will be responding to the 2 questions that you've asked. First, in regards to Kanana and KakaoTalk and ChatGPT in Kakao. Agentic AI that is envisioned by Kakao is not simply connecting to external APIs, but it is one that creates new user experience. in which AI makes suggestions and recommend services within the context of the conversation and completing the flow all the way across authentication and up to ordering and payment process. And in order for this to happen, partner service strength and competitiveness has to stay intact. And that is why we need to redesign service architecture and user experience to allow AI to naturally intervene into the scene.

That is why we also need to go through a process to align R&R roles and responsibility of each of the respective companies and also match baseline for business model and operations. Now this approach is yet to be proven even in the global market as the agent goes beyond the boundaries of the platform and has to be incorporated into the off-platform ordering and payment processes and make that connection to real-world activities.

So through our initial partnership, we felt that it is very important to show how agentic AI actually works in connection to action thesis. In everyday services -- in everyday services. And we felt that delivery service was most appropriate because of high frequency of usage by the year base and relatively lower user intervention that is required along the process because experience and value is mostly placed on how fast and convenient the process is rather than having to conduct in-depth information searching. So in creating the most optimal experience, we wanted to be able to validate the convenience. And we felt that this would actually show the utility of agentic AI the best.

In creating the most optimal experience, we want to be the first to validate the scalability and business feasibility of identic AI business. user intent and connecting that to ordering and payment process, we are able to generate, I believe, through this process, new customer acquisition for our partner companies and also drive GMV growth. And this will become strong basis for scaling agentic AI ecosystem as well as our partner base. And based on such experience and operational know-how, we will develop A2A based integration structure supporting role of the agents and also the call method. And repeatable features like authentication, delegation and ordering and payment will be offered in the form of SDKs and agent builders.

And for our subsequent partners, we believe that they can implement this optimal agentic AI experience very quickly with less cost and development resources, while the ecosystem scales much faster, leveraging PlayMCP. .

Now let me move on to your -- the second part of this question on the update on AI services and our plans to expand on user engagement. So looking at Kanana and KakaoTalk and ChatGPT for Kakao. Firstly, for Kanana and KakaoTalk, since its release, it's been -- we've been releasing enhancements on average of every 2 weeks based on user feedback and incorporating data usage as we further refine user experience. Because competitiveness, we believe it will be determined by how fast we incorporate actual usage data to our services.

And the results show that of the users who left positive feedback on proactive message and the responses were above 80% and 90%, respectively. In particular, we see high ratings for intent-based recommendations within the context of the conversation for search, shopping and local play services. With users seeing how useful it is, we are also seeing increase in repeat and recurring usages on the back of better service experience. And so user retention has moved close to 80% and versus 70%, which was immediately after the release.

So we plan to expand on intent to action, conversion, connecting all the way up to ordering and making payments with our endeavor with the delivery platform and make sure users intent are precisely captured within the conversational context so as to build on that experience. We will also start implementing marketing in full swing around key use cases when it becomes clear that we have full laid the basis to drive sustainable usage of Kanana and KakaoTalk as part of people's daily lives. We will quickly increase new customer acquisitions and user acquisitions and will enhance service experience, so their first try can lead to repeated usage.

ChatGPT for Kakao in the second quarter had a reported 13 million cumulative subscribers. So we're now in a phase where activity and usability metrics is more important than subscriber numbers. Daily average outbound message per user now exceeds more than 6 messages and daily average time spend is close to 8 minutes as of the end of the quarter, showing very clear uptrend in activity as we move beyond subscriber expansion stage. And to further facilitate this trajectory in recent update, we enabled the feature where ChatGPT can be called into the chat room like a chatbot and people can ask questions and share the responses with others in that chatroom. And we expanded this to the PC platform as well, further scaling the touch point. This will help people to use ChatGPT seamlessly wherever they are within KakaoTalk whenever they have any questions. We will try to spread such usage as part of the conversational theme and through the sharing.

So in the second half of the year, we will further drive identic AI experience of Kanana and KakaoTalk and also enhance image generation and chatbot features of Cap for Kakao as we further scale AI services embedded in the Talk platform. In light of user metrics that we are seeing at this point, and future plans on our service expansion, we think we can achieve 10 million MAU by the end of the year as people become accustomed to such services.

[Interpreted] We'll take the next question. .

[Interpreted] The following question will be presented by Jae-min Ahn on from NH Investment & Securities.

[Interpreted] I am Ahn Jae-min from NH Investment & Securities. You did give us a summary of your second quarter financial performance. Any added of that result that you wish to highlight. If you could provide us additional color, that would be helpful. And do you believe that you will be able to sustain this good performance as you move into the second half of the year? I have a second question, which relates to timing. When do you believe that these AI partnership endeavors with the partner companies can start to make contribution -- meaningful contribution to your performance? And what are your thoughts on your mid- to longer-term monetization strategy?

[Interpreted] This is the CFO responding to your question. In the second quarter, we've seen our platform revenue actually post a 17% year-over-year growth, really driving the overall consolidated profit. If you look at Kakao Pay as well supported by strong performance from its brokerage business, it turned -- it made a turnaround into profit. and it rewrote its historical record in terms of quarterly operating profit and made contribution to our platform business.

The aspects that I would like to highlight for this quarter are the core businesses and from the core businesses of Kakao. We've seen reacceleration of the growth from top business, ad and commerce business. And as a result, if you look at our top line growth rate in the second quarter, we were able to recover for the first time in 4 years, a double-digit growth rate. So supported by the strength from such core businesses, even after the inclusion of Kakao Brain, and even with continuing investment into AI on a stand-alone basis, our operating profit margin increased by 1 percentage points year-over-year, reporting 18%, which is the highest level since the inclusion of Kakao Brain, which goes to show that even Kakao on a stand-alone basis can continue on with AI investment and at the same time, drive profitability of its core businesses.

So we now see a clear pattern where on top of revenue growth from our core businesses, we've also seen momentum behind our bottom line and profit improvement. On top of that, there was an impact from governance change as well as streamlining of our business structure. So as a result, in the second quarter, we were able to mitigate the impact from loss-making business and also generate profit from our core platform business, whereby the losses no longer actually make or dilute the consolidated performance of the company. As we've been communicating over the years to the capital market, we've adopted a strategy with a keyword of selective focus. So I believe that this outcome is a result of a very sound and healthy growth endeavors over the years. And so the good performance that we are seeing in the second half is actually the result of such efforts.

Now moving on to the second part of your question about the second half of the year outlook. The good performance that we've seen in the second quarter is not a onetime peak. It really goes to show that our earnings capacity has now been notched up one level higher, and it is now forming a new baseline for us in terms of our future performance.

Our assessment is that the platform business has reentered the structural growth phase. So in the second half of the year, we expect the growth trajectory to continue and drive further improvement in operating profit margin. we are seeing tangible results based upon various different strategies that we've implemented over the year, and we believe that it will offset last year's base effect that weighs down on the performance.

On top of this, starting in the third quarter, we will see the impact of the streamlining of our noncore businesses fully reflected and in others in Q3. And so we expect that we will be able to continue on with the relatively higher profitability in the third quarter of the year as we've seen in Q2. Hence, we believe that our consolidated financial target of per annum top line growth of more than 10% and OP margin of 10%, which are the targets that we set at the beginning of the year. be without much difficulty, be able to outperform those targets.

And on Kakao stand-alone basis, the growth that we see from advertisement and commerce business is offsetting our AI investment burden. So AI right now is at the investment phase ahead of making contributions to the top line. But we at Kakao, are making efficient cost controls and cost management. And so we believe that AI related operating expense in the second half of the year will be maintained at the current level. So the growth from our existing core legacy businesses are ample enough for -- to support us up until the time that our AI business starts making revenue contribution.

From a mid- to longer-term perspective, we project that AI is going to be the new growth engine that actually drives Kakao's top line growth and also that strengthens our operating profit capacity. As I mentioned before, in 2028, we expect to see that the new revenue that's generated by AI will account for double-digit share out of the entire Talk Biz revenue. So on top of our advertisement and commerce solid growth from these 2 businesses on top of which there will be AI contribution, Eventually, we will be able to see our OP margin significantly outperformed the 20% level on a separate basis.

[Interpreted] As we are running out of time, we will be taking the final question. .

[Interpreted] The last question will be presented by Junhyun Kim from HSBC.

[Interpreted] I remember that beginning of the year, you've guided us that you are looking to grow your top is ad business by double digit. I would like to know as to whether that guidance is valid? And if you believe that such growth could actually continue on not only into the second half but to next year, if that growth can continue, what will be the key levers that enable that growth? My second question is, recently, within the sector, there's been growing interest on infrastructure business, including AI data centers and GPU Cloud. Would like to understand what Kakao's strategy is in regards to this sector?

[Interpreted] This is Shina. I will address your question on the second half and next year advertisement growth outlook. Now for the second half of the year, we are looking to see a business message and top display ad to report a robust growth driving the overall top base ad and commerce advertisement will be making revenue contribution. So we believe that double-digit growth still holds as we go forward. In particular, if you look at the in-feed ad, it actually has high advertisement efficiency as well as in terms of onboarding new advertisers, it's been able to prove that it is competitive and had really driven the overall talk display ad growth. in the second quarter. So our plan is to continue to focus on in-feed ad to drive display ad growth.

So such feed time advertisement actually naturally surfaces when the user actually searches for content. Compared to the more traditional type of ad product, its attention and conversion metrics are quite good. And supported by these levers, excluding Biz Board, if you look at DA revenue, we've seen a year-over-year growth of 3x. And out of the total DA business its revenue mix expanded to 45%. So for our advertisement revenue, the pivot is shifting and diversifying further away from this board centered structure to one that is more focused on feed type advertisement. And hence, we believe this to be quite meaningful.

So going forward, we will continue to enhance the social feed service and expand the short-form content ecosystem so that we can further drive user activity. We will continuously solidify and strengthen the competitiveness of our advertisement product so that we can sustain the growth in fee-based advertisement. From a more mid- to longer-term horizon, supported by AI services, we will be identifying new advertisement business model and will adopt -- and we also consider expanding into the search ad market as one of our key tasks going forward.

So I'll comment on the second half of the year once our AI service within KakaoTalk gains a meaningful amount of user base. We will be able to have a more precise understanding of the interest and the intent of the users via the way of their AI search. And we will be able to provide a more broader experience that is powered by AI that goes beyond the keyword-based search ad realm. If you look at the domestic digital advertisement market, there are 2 pillars, which are display ad and search ad. Up to now, Kakao has been doing its business, mostly around the display ad business. Going forward, we will enter into also this search ad market and expand that market so that we can gain a mid- to long-term growth engine.

Next, I would like to talk about our strategy for AI factory and B2B infrastructure. within the company, we carried out a close review of business feasibility across all of the AI value chain, including AI data centers and GPU Cloud. We feel that the area that we can make the most different is not the infrastructure layer. Because Kakao as a company has made a formula for success based on B2C capabilities developing services that can be diffused into every aspect of people's daily lives. And in the AI era, this competitiveness will continue because this is what we are best at, I believe, and I think that it's the best way for us to meet the shareholder expectations. And this is an area where there is a better chance for us to drive explosive growth.

From the financial perspective, AI infrastructure business requires large-scale leading investment as well as ongoing CapEx. Considering the speed of technological change that we see in AI, GPU and AI server and hardware replacement cycle is changing very fast. And there is competitive supply expansion that is taking place so we cannot guarantee high margin or profitability to continue over an extended period of time from the supply imbalance. So we believe that prospective ROI may not be sufficiently high compared to the short-term financial burden.

So considering the core competitive edge that Kakao has and the financial implications rather than spend huge amounts of capital into the infrastructure layer where CapEx dictates. We will focus on the model layer, all the way up to the service layer to develop AI services that can form part of everyone's daily habit in order to drive the corporate value.

[Interpreted] Thank you. This will end the second quarter 2026 Earnings Conference Call of Kakao. Thank you for joining us. .

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

[Interpreted] Good morning, and good evening. Thank you all for joining today. We will now begin Kakao's 2026 First Quarter Earnings Conference Call. This conference will start with a presentation followed by a divisional Q&A session. [Operator Instructions]

I will now turn it over to Kakao.

[Interpreted] Hello. I'm Jeffrey from Kakao IR. We'll now begin Kakao's 2026 First Quarter Earnings Conference Call. Today, I am joined by Shina Chung, the CEO; and Jayden Shin, the CFO. 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. Also, forward-looking estimates are based on assumptions, so actual results may differ from figures included in today's presentation.

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

[Interpreted] Good morning. This is Shina, CEO of Kakao. Across the broader AI industry, we are seeing the rapid expansion of execution-oriented environments where agents can be built, connected to external services and ultimately perform real actions.

At the same time, expectations and interest around personalized AI agents also appear to be rising. I've also spent extensive time using some of the AI agent services that are currently gaining attention. And what I found was that due to clear limitations such as excessive token consumptions and privacy risk, there are still many challenges to overcome before these services can scale into products used by the broader population.

In fact, I believe these limitations will create a clear opportunity for Kakao in the coming era of agentic AI. But I would like to emphasize that this is, Kakao is already ahead of others in securing the necessary technologies and building the core elements of the ecosystem required to capture this new opportunity.

The web-based agents widely used in the market today are structured in a way where one large agent handles all domains and tools. As a result, they inevitably need to maintain a high degree of flexibility. This means that when they adopt screenshot-based CLMs or CUA computer use agent approaches, token consumptions can become excessive.

It can also take a significant amount of time before the user receives the desired results from a request. By contrast, Kakao's agentic AI platform is designed around a distributed collaboration structure. Instead of relying on a single large agent, it consists of a lightweight orchestrator at the top layer and specialized agents for each domain of the lower layers.

The top layer orchestrator analyzes the user's intent and routes the task to the appropriate domain. Then the specialized agents carry out the task organically through an agent-to-agent protocol. With this structure, Kakao's agentic AI platform is designed to significantly reduce both token usage and the time required to process user request.

In addition, following the release of Kanana-2 late last year, we're preparing to unveil Kanana-2.5, a 150 billion parameter model. Like Kanana-2, Kanana-2.5 was developed from scratch and optimized for our agentic AI platform. In comparing base model performance, we have confirmed that it delivers the strongest performance among domestic and global LLMs with similar parameter sizes.

Also, while its parameter size is less than 10% of global SOTA models, it shows significantly better performance in execution-oriented areas that are essential for the services Kakao needs to operate, such as planning and function calling. In addition, we completed the development of our proprietary tokenizer last year, which led to a significant improvement in both training cost efficiency and inference speed. The Kanana tokenizer maintained strong English processing performance while offering the most efficient Korean compression capabilities among publicly available models in Korea and globally.

When using a general purpose tokenizer, Korean can require roughly 1.5 to 3x more tokens than English to express the same meaning. Through the Kanana tokenizer, we have confirmed up to a 40% reduction in training costs compared to the existing tokenizers as well as up to a 60% improvement in inference speed.

With these capabilities, Kakao is completing the technical preparations needed to scale up its agentic AI platform for the entire population, not just a small group of users much faster than the market expects. At the same time, this year, we are focusing on [ securing ] user touch points, one of the key components of the agentic AI ecosystem where users and agents can meet.

Kakao aims to onboard all 50 million users to AI services. We plan to launch services in various forms and address user needs in a more segmented way. ChatGPT for Kakao is designed to target users who are familiar with AI, actively use it and are willing to pay for AI services. Kanana and KakaoTalk, on the other hand, is designed so that anyone can naturally use AI in their daily lives, even if they have limited understanding of AI or are not willing to pay for their services.

In the third quarter, we plan to significantly expand the user base for the AI services already launched within KakaoTalk while continuing our efforts to improve user activity. First, Kanana and KakaoTalk and Kanana Search are services that leverage the strength of messaging to proactively identify users' needs within the context of conversation.

They go beyond simply suggesting relevant information or actions and provide an experience where reservations and payments can be connected into a single flow. Kanana and KakaoTalk completed its CBT on iOS devices in March and has been launched on Android devices. Even after the launch, user activity has continued to improve at a healthy pace.

The share of daily active users who respond proactive messages from the agents as well as the number of actions per user have both improved meaningfully compared to the CBT period. User retention also remains at around 70%, similar to the levels seen during the CBT.

We believe this is a positive result that reflects the strength of an on-device AI service that only Kakao can deliver. However, given that the service is still in its early stages, there is still work to be done to further improve the accuracy and the quality of responses as well as the accuracy of proactive messages in the intervening at the right moment.

We will continue to enhance the model and improve the service in a way that increases user activity and satisfaction. Alongside Kanana and KakaoTalk, last month, we also began the phased rollout of Kanana Search, which extends conversation context-based AI experiences to the exploration area. The biggest differentiator of Kanana Search is that it identifies users search needs in real time within conversations and allow them to check the information they need directly inside the KakaoTalk chat room.

Users can now explore and share search results for places or product mentioned in the conversation as well as trending topics that people are most curious about at that moment. And all of these actions can be done without leaving the KakaoTalk chat room. Kanana Search is currently being tested in beta with a small group of users.

Although Kanana Search is still in its early stage, only 3 weeks after launch, we have already seen positive initial results with query-based activities among target users increasing meaningfully compared to the existing keyword input-based Sharp search.

In addition to Kanana and KakaoTalk and Kanana Search, we provide natural AI experiences based on conversational text. ChatGPT for Kakao is expanding the scope of AI usage within KakaoTalk by also covering explicit exploration needs. ChatGPT for Kakao has now surpassed 11 million cumulative registered users, securing a meaningful user base.

At the same time, MAU has already doubled -- nearly doubled quarter-over-quarter, while monthly messages sent per user have more than doubled. As a result, both the user base and the user activities are showing clear improvement. Internally, we see this as a sign that users are moving beyond simply visiting the service and entering a stage of repeated usage.

Kakao's mid- to long-term AI vision is for all 50 million KakaoTalk users to have their personalized AI agent. Accordingly, we are preparing across both services and models based on the assumption of a future where all 50 million users are onboarded. On the service side, by leveraging on-device AI models and partnership, costs do not increase linearly simply because the number of users grow and activity metrics increase.

On the model side as well, we have implemented an architecture that can support an agentic AI ecosystem used daily by a large-scale user base in the most cost-efficient way. Rather than focusing on concerns around cost increases, Kakao will focus on the new growth opportunities that are opening up and move forward in earnest with scaling up its agentic AI platform. Following the AI business, I will now discuss the advertising business, another key growth pillar for Kakao.

KakaoTalk has recently seen rapid growth in video and feed type content consumption. As a result, it is evolving beyond a simple messenger into a platform where users explore and discover content and where relationship and interest are connected.

In particular, for our short-form services, the expansion of creators and the advancement of personalized recommendations are working together to broaden the range of content available. As of April, average daily valid views have more than doubled compared to the period immediately after the service launch and overall activity metrics are all showing meaningful upward trend.

From an overall service perspective, it is still in the early phase with further improvements needed in the content competitiveness and the ease of use. But as the user base continues to expand and usage frequency rising at the same time, we believe the pace of growth will gradually enter the acceleration phase going forward.

The changes in user experiments are also translating into visible reserve for the advertising business. As user content consumption expands, video and feed type ad inventory has increased, both improving both ad delivery and efficiency.

As a result, we are seeing a rapid inflow of demand from SME advertisers and video-oriented campaigns. At the same time, within this expanded inventory, Kakao is automatically optimizing the most efficient combination of ad placements and creatives based on advertisers' objective, user context and real-time performance data, thereby strengthening its competitiveness as an ad tech platform.

As a result, the revenue share of display ad other than Bizboard, which accounted for only around 10% of total Talk Biz display ad in the first quarter of last year, expanded to around 30% as of the first quarter this year. Accordingly, the advertising revenue structure also shifted from one centered on specific products or a limited number of large advertisers to a more diverse structure, leading to the highest first quarter revenue on record.

In the first quarter, supported by solid growth in the platform business, consolidated revenue grew 11% year-over-year, returning to a double-digit growth for the first time in 8 quarters. What is particularly encouraging is that unlike the past expansion of scale driven mainly by inorganic growth, this quarter delivered qualitative growth through the strengthening of our core competitiveness.

In terms of profitability, structural improvement also continued as operating leverage began to work in earnest across the high-margin platform business, led by Talk Biz, our core business.

As a result, both consolidated revenue and operating profit reached record high for the first quarter, while operating margin came in at 11%. Building on the structural growth trajectory that our existing businesses, Kakao is now beginning its transition beyond the simple messenger to an agentic AI platform used by 50 million users.

Going forward, we expect interactions between users and agents to increase significantly across various touch points within KakaoTalk, while the pace at which key players across different verticals joined Kakao agentic AI platform is also expected to accelerate. For agentic AI to spread within the mainstream, it will need to go through multiple stages in sequence.

But we believe we have taken a strong first step in the first half of this year. And from the second half, as users will be able to experience agents that starts from conversation inside KakaoTalk and complete the flow all the way to payment, we expect to reach an important inflection point.

KakaoTalk has long connected communications between people in the most complete way. This technical capability will also become Kakao's strongest competitive advantage in implementing the A2A protocol, which supports communication and decision-making between agents. In the near future, we will show through KakaoTalk a future where all 50 million users interact with their own personalized AI agents every day as part of their daily lives.

Next, Jayden, our CFO, will present the 2026 first quarter financial results.

[Interpreted] Hello. This is Jayden, Kakao's CFO. I will present the consolidated financial results for the first quarter. Consolidated revenue for the first quarter recorded KRW 1,942.1 billion, up 11% Y-o-Y, but down 5% Q-o-Q. Platform segment revenue reached KRW 1,182.7 billion, growing 16% Y-o-Y and decreasing 4% Q-o-Q.

First, revenue for Talk Biz, Kakao's core business was KRW 608.6 billion, up 9% Y-o-Y, but down 3% Q-o-Q. First quarter Talk Biz advertising revenue recorded KRW 338 billion, underpinned by the solid growth of business message and Talk display ads, it increased 16% Y-o-Y, though it declined 10% Q-o-Q due to seasonality.

Business message revenue showed even stronger growth, rising 27% Y-o-Y despite the high base effect from last year's consistent double-digit growth across the whole year. Growing demand from financial advertisers to deliver information safely and effectively led to higher total message volume. Furthermore, the diversification of message products expanded the scope of use for advertisers, driving revenue growth. Talk display ads recorded 10% Y-o-Y growth as advertiser demand continued to rise structurally following the expansion of feed-based ad inventory. Growth was driven by the increased use of short-form video and image-centric creatives, along with new demand from small to medium commerce advertisers active in live commerce.

First quarter combined commerce GMV reached KRW 2.9 trillion, up 10% Y-o-Y, but down 3% Q-o-Q. By strengthening our product lineup in high-demand categories like fresh food and home appliances ahead of the Lunar New Year and refining personalized benefits, we maintained Y-o-Y growth through combined holiday demand and promotional effects.

Notably, through Kakao Shopping Festa, our largest promotion of the first half held in March, Talk Store GMV, which had been stabilizing downward, successfully rebounded with 18% Y-o-Y growth. Additionally, self-purchased GMV within Talk Gift grew 53% Y-o-Y with the portion of self-purchase expanding to 20% of total gift GMV.

Moving forward, we aim to unlock further growth potential by turning the user experience into a habit, not just for gifting, but for personal product discovery and consumption. For reference, commerce revenue was KRW 270 billion, up 1% Y-o-Y and 7% Q-o-Q. Platform others revenue recorded KRW 507 billion, up 30% Y-o-Y and down 4% Q-o-Q. In mobility, we achieved double-digit Y-o-Y growth for the third consecutive quarter, supported by steady performance across the taxi business, parking, last mile logistics and advertising.

Kakao Pay's quarterly revenue surpassed KRW 300 billion for the first time, fueled by balanced growth across payment, finance and platform services. Specifically, the expanding share of financial services driven by the strong performance of the securities business has led to record-breaking operating profits every quarter since its turnaround in the first quarter of last year.

First quarter revenue for content was KRW 759 billion, up 5% Y-o-Y but down 7% Q-o-Q. Story business revenue recorded KRW 182 billion, down 14% Y-o-Y and 5% Q-o-Q. E-commerce first quarter revenue in yen decreased 9% Y-o-Y due to the market slowdown in the Japanese manga sector, remaining flat Q-o-Q. However, by optimizing marketing to increase user retention, the operating margin exceeded 20%, proving its robust profitability once again.

Following the launch of Piccoma Kuji last year-end, we plan to introduce new short-form animated video content within the platform, utilizing popular IPs starting in late May. Piccoma plans to further enhance user traffic and immersion by providing diverse entertainment opportunities based on its rich archive and solid fan base. Piccoma will continue to build a firm foundation for mid- to long-term growth, leveraging the healthy profit structure of its existing webtoon platform.

Meanwhile, Kakao Entertainment Story business saw a decline in GMV across both platforms and distribution, resulting from the overall market slowdown. Music revenue recorded KRW 485 billion, up 11% Y-o-Y, but down 8% Q-o-Q. Y-o-Y growth was driven by strong album sales from anchor IPs, including IVE and EXO and the expanded global tour of major artists.

Conversely, revenue declined Q-o-Q due to the high base effect of MD and licensing revenue last quarter. Finally, media revenue recorded KRW 92 billion, up 23% Y-o-Y and down 3% Q-o-Q, reflecting changes in recognized titles and production progress this quarter.

Next, regarding operating expenses. First quarter operating expenses recorded KRW 1,731 billion, up 7% Y-o-Y and down 5% Q-o-Q. Labor costs increased 5% Y-o-Y due to salary hikes at subsidiaries, but decreased 2% Q-o-Q to KRW 445 billion following the base effect of year-end bonuses. Marketing expenses recorded KRW 73 billion, down 3% Y-o-Y and 34% Q-o-Q as marketing by Piccoma and Pay were concentrated in the fourth quarter.

The ratio of marketing expenses to consolidated revenue was 4% Revenue-linked costs increased 6% Y-o-Y due to expanded music IP activities and media production costs, but decreased 5% Q-o-Q to KRW 701 billion, reflecting the base effect of subsidiary service costs in the fourth quarter. Outsourced infrastructure costs increased 9% Y-o-Y due to rising demand in the Platform segment. However, they decreased 12% Q-o-Q to KRW 208 billion, reflecting a decrease in production-related outsourcing and the base effect of one-off costs from the AXZ spin-off.

Amortization expenses recorded KRW 197 billion, up 2% both Y-o-Y and Q-o-Q, impacted by one-off bad debt expenses and intangible asset amortization related to the consolidation of DearU. Consequently, first quarter consolidated operating profit reached KRW 211 billion, a 66% increase Y-o-Y, showing a significant improvement in profitability.

The operating margin improved by approximately 4 percentage points to 11%. Historically, the first quarter has shown lower profitability due to seasonal factors. This quarter, however, efficiency measures in core businesses was reflected in our results, confirming that structural profitability improvement, transcending seasonal patterns is now in full swing. For reference, stand-alone operating profit for the first quarter was KRW 119 billion, up 15% Y-o-Y with the operating margin improving to 17%.

Moving on to nonoperating items. First quarter nonoperating income recorded KRW 121 billion, an increase of KRW 14 billion Y-o-Y and KRW 263 billion Q-o-Q. This represents a sharp improvement compared to the previous quarter, which saw impairment losses on goodwill and intangible assets during the year-end audit. Income tax expense for the first quarter was KRW 46 billion, and consolidated net income recorded KRW 227 billion. Lastly, total CapEx for the first quarter was KRW 118 billion, consisting of KRW 92 billion in tangible assets investments and KRW 26 billion in intangible asset investments.

CapEx decreased by KRW 21 billion Y-o-Y as AI-related investments were concentrated in the first quarter last year and decreased by KRW 75 billion Q-o-Q due to the base effect of tangible asset acquisitions by subsidiaries.

This concludes the presentation on the first quarter earnings for 2026. We will now proceed to the Q&A session. [Operator Instructions]

[Interpreted] [Operator Instructions] The first question will be provided by Minuh Cha from Goldman Sachs Securities.

[Interpreted] I have 2 questions. First question relates to your various AI service products. You have rolled out Kanana in KakaoTalk, Kanana Search and ChatGPT for Kakao. I would like to understand about this because I see that despite such rollout, we haven't seen any massive promotion that was done by the company nor was there any significant buzz or expansion of your user base.

And I think hence, the speed of the diffusion of such AI services was less than expected. Can you explain as to the reason why? And also, what are your plans going forward to expand on your user base in the future?

Second question, as Shina has also mentioned during the opening presentation, the company has been highlighting the importance of agentic AI platform I would like to understand as to the update of the onboarding of and your collaboration with your external partners from different verticals. And also, can we look forward to the agentic commerce being implemented before the end of the year?

[Interpreted] This is Shina. First, responding to your question on our AI service rollout and how it's creating less buzz than what the market has expected and the speed may be a bit slow compared to market expectation. Now I can tell you that Kakao is strategically modulating the speed of diffusion of the AI services rollout.

We have been adopting a phased approach. Speed may, therefore, seem a bit slow versus market expectation. But I can tell you that it is an intended strategy of the company because we wanted to secure user retention and provide more complete experience to our user base rather than focusing on short-term traffic gains.

Now Kanana and KakaoTalk and Kanana Search, I can tell you are new service types and not many global references currently exist, and it is a key entry point to expanding the agentic AI. We're focusing on enabling user experience by bringing these 2 services seamlessly into the messaging scene and continuously improve the degree of completeness based on the feedback and user activity and engagement metrics.

So we will fully verify the utility of these services and then push towards diffusion underpinned by KakaoTalk traffic and the network. Kanana and KakaoTalk is actually showing a quite meaningful improvement in terms of user satisfaction. April's user feedback monitoring showed that 70% responded positively to messages that was initiated by the Kanana agent and 80% provided positive responses to quality of such responses.

Now by the end of the year, we expect around 31 million prospective users who will be able to download the model, and we will continue to scale up the model and drive quality so more users can enjoy using AI services.

Kanana Search is in beta service against a very small group of people at this point. And once the service development reaches a certain level, we expect network effects to kick in and user diffusion will take place quite quickly. We will use various different business models that best fit AI search in the mid- to longer-term horizon.

For ChatGPT for Kakao, our focus will be on driving repeat visits and stronger user engagement beyond simply expanding the user base. We will launch new features that will trigger sharing and lead to participation by the users and provide more touch points for them to use ChatGPT with greater ease. We will introduce ChatGPT's Go plan, which is a more reasonably priced plan to lower the entry barrier in terms of pricing and expand subscriber base gradually.

Now moving on to your second question about the agentic AI ecosystem and a partnership update. Now although the market is moving quite fast in terms of the agent technology development, in terms of the service level, we're still at a simple information delivery and exploration stage. And due to different interest among the platform operators, there are a lot of hurdles to achieving a seamlessness and to complete the flow all the way up to the final step of payment.

To overcome this limitation, starting April, we connected Kanana and KakaoTalk and our internal services KakaoTalk Gift, testing the early version of this agentic commerce. We have implemented an architecture where user stays within the context of the dialogue from understanding of the intent to product recommendation up to payment, the flow and action is completed without the user having to leave the chat room.

This month, we will test connection to our external partner and validate scalability of agentic commerce going beyond the boundaries of Kakao ecosystem. We expect with AI agent diffusion, we'll move from app-centric service and evolve into a headless architecture where function and interface is separated with a downsized front end.

But when we talk to key players from different verticals, there is still fear and strategic resistance to moving over to the headless ecosystem, especially for partners who generate their ad revenue based on their own traffic, they're worried about losing their control over the existing traffic, and that is why they're taking on a prudent stance.

Despite that, we've had meaningful progress with highly influential players in several of the verticals during the first quarter. In working with big partners, we will do more than a simple API and functional integration. We use Kakao's agent builders to implement end-to-end architecture to support search based on A2A protocol going through the entire flow up to payment where there isn't yet a global reference of commercial use.

In other words, agents will identify user intent in the context of the conversation, initiate exploration and make recommendations upon which actual transaction for service and product would take place without the user having to leave KakaoTalk. This is a proactive agent service, which we are currently working on.

So before the -- before next earnings call, all of you will be able to experience the initial version of agentic commerce that only Kakao can provide in connection with many of the partners that we are working on -- working with across many different verticals. With this, the users will be able to make a very rapid decision. And also from the partner company's perspective, they will be able to secure new traffic with high level of intent by using this new funnel. And this would create higher conversion rate as well as drive up GMV. And we expect that with this synergistic structure in place, we will be able to accelerate our partnership expansion.

[Interpreted] The following question will be presented by Seokoh Kang from Shinhan Investment & Securities.

[Interpreted] My question relates to your financials. Can you give us a bit more color on what your outlook is for second quarter performance? And also despite the fact that there is negative seasonality usually in the first quarter, you have already achieved your guidance of OP margin of 10% would like to understand, would this lead to any changes in the annual guidance that you had previously communicated?

Second question is on advertisement. Can we continue to expect a solid growth and uptrend for your Talk Biz? And also, what will be the key product or strategy that would be the key lever behind growth going forward? And also usually in the second half of the year, due to the high base effect for your Talk Biz, I would like to understand what -- I guess, what impact that will have on your second half advertisement -- excuse me, second quarter advertisement outlook?

[Interpreted] Let me first respond to the question on our second quarter performance outlook. We expect that following the trend that we've seen in Q1 in Q2 as well, the platform growth will be quite solid, and it will be a key lever behind the growth of the consolidated revenue for the company.

Especially if you look at platform business, the core businesses of Talk Biz ad and commerce is continuing on its growth uptrend. And also thanks to the tailwinds that we are seeing from Kakao Pay's payment business and its securities business, we expect the profitability uptrend will also continue for the time being.

Now having said that, there was a ban on the imposition of franchise fees on the roaming taxis, which came into effect -- which will come into effect from May, and we expect there will be some top line impact from that factor.

For our content business, we're expecting growth in terms of the artist tours and appearances for the music business. And so we do expect growth coming from the music business. But because of the limited growth potential growth coming from our story business and also with higher level of marketing spend, we are currently taking a conservative approach when we are making projections for its profit contribution.

Especially for Piccoma, they are planning on a more broader user engagement campaign in line with their 10-year anniversary event as well as promotion for the Golden Week. We believe that coming out of that, there will be an increase in marketing expense. So all in all, if you look at the second quarter, we do expect a solid revenue trend. However, because of the temporary expansion in the marketing spend, the improvement in the profit is going to be limited.

Now having said that, from an annual perspective, because of the high-margin Talk Biz business as well as a solid growth coming from our overall platform business, we believe that we will sufficiently be able to achieve the financial guidance that we communicated at the beginning of the year.

Also, higher marketing spend by Piccoma in the second quarter is going to be a one-off factor, and it will be underpinned by higher level of user engagement that will be led by such marketing spend in the second half of the year. And so we expect a recovery in terms of top line revenue and profit.

[Interpreted] This is Shina again. I will respond to your second question about our KakaoTalk ad business. Q2, the Talk Biz ad, we expect to when we project that there will be a solid double-digit growth. Now the results that we are currently enjoying from our advertisement business is not a one-off impact from a mere expansion of the ad inventory, but we believe that this is an outcome of a structural enhancement in terms of advertiser diversification as well as changes of our users within -- behavioral changes of the KakaoTalk users.

Underpinned by these drivers, we believe that growth will also continue onwards even when we enter the phase where the base effect weighs down on the results.

Now firstly, for Talk Biz display ads based upon user activity and engagement, we think that there will continue to be structural growth continuing into the second quarter. And also, there is solid demand from our advertisers and finance and commerce segment for business messaging. And by providing wide-ranging and diversified message product offering, we will be able to further improve and increase and strengthen the CRM features. And so despite the high base effect, we are looking forward to a high rate of growth.

Also for KakaoTalk ad pivoting on display ad and business messaging, the ad product spectrum has been widening. And so we have a very strong structure under which the advertisers can effectively in alignment with their purpose and the user context can really reach the customer that they are intending to reach.

As a result, we're not simply seeing improvement in a simple impression, but also it is connected to converting or the conversion or the repeat visit. And as such, the marketing approach and marketing spend has been continuously being scaled up, and we are seeing quite meaningful results from ROAS perspective as well.

In the second half of the year, we will go beyond our business messaging and display ad and we'll expand our commerce ad portfolio as well so that we can gain additional growth engine going forward. Now within Kakao's platform, we have more than 40,000 commerce seller pool. However, due to limited inventory and sales structures, their use of our marketing has been quite limited.

So going forward, by making use of the commerce advertisement inventory and by transitioning to a moment-based open structure, we want to speed up and accelerate these commerce sellers to become the advertisers. So our objective is to actually increase by fourfold the share of advertisement against the monthly basis commerce GMV or GPV to be about 4x higher compared to the beginning of the year.

[Interpreted] So due to the time constraint, we will now take the final question. The last question will be presented by [ Joon Ho Lee ] from Hana Securities.

[Interpreted] I just have one question. With your recent decision to sell your stake in Kakao Healthcare and Kakao Games, I would like to know what impact it has on your consolidated P&L? And what would be your plan in terms of realigning your portfolio going forward?

[Interpreted] Starting last year, Kakao has been focusing on streamlining its governance so that it can really focus on its core businesses. So as a result, right now, our number of subsidiaries that are consolidated have come down to 95. And once we complete the deconsolidation process for Kakao Games, it will come further down to 87 entities. Following the sale of the holdings that we had in Kakao Healthcare that was conducted end of last year, we are also going through the process, similar process for Kakao Games.

And basically, the intent is to grow together -- have them grow together with partners who have greater level of expertise and execution capabilities in each of those industries and sectors. Kakao is no longer going to be the majority shareholder, but we still hold on to minority share and equity.

And so going forward, we will try to build a structure whereby we can share the growth of such businesses and the increases in the value of such businesses. So the revamping of our business portfolio is allowing Kakao to spend and input more resources into its core businesses. As mentioned during the opening presentation, our platform business growth is very solid with Talk Biz as the flagship service and product.

So compared to the first quarter of 2024, where there was an impact from the acquisition of subsidiary entities for the first time, we were for this quarter able to record a double-digit consolidated top line growth.

At the same time, we're seeing meaningful improvements on consolidated P&L as well as the companies whose OP contribution was low have now been deconsolidated, we are now seeing a more clear structure whereby an earnings growth of our core businesses really make contribution to consolidated profitability.

So as of 2025 numbers, if you were to look at the combined operating loss coming from Healthcare and Games, the size will be in the range of around KRW 100 billion. So if such operating loss is excluded, 2025 annual operating profit margin actually is uplifted by about 2 percentage points. So with the full impact of the portfolio enhancement work coming in and also being reflected in 2026, we believe that as we continue on with strengthening KakaoTalk and the competitiveness of its AI services, we will be able to speed up qualitative growth in terms of our top line and also enhance profitability.

[Interpreted] This brings us to the end of the earnings conference call for the first quarter of 2026. Thank you, everyone, for joining us.

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

[Interpreted] Good morning, and good evening. Thank you all for joining today. We will now begin Kakao's 2025 Fourth Quarter and Full Year Earnings Conference Call. [Operator Instructions]

I will now turn it over to Kakao.

[Interpreted] Hello. I'm Jeffrey from Kakao IR. We will now begin Kakao's 2025 Fourth Quarter and Full Year Earnings Conference Call. Today, I'm joined by Shina Chung, the CEO; and Jayden Shin, the CFO.

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. Also, forward-looking estimates are based on assumptions, so actual results may differ from figures included in today's presentation.

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

[Interpreted] Good morning. This is Shina, CEO of Kakao. Over the past year, Kakao has focused on consolidating our group-wide capabilities around core businesses to ensure sustainable long-term growth. Through this process, we significantly streamlined our organizational structure, reducing the number of subsidiaries from 150 to 94 at the end of last year. This year, while continuing our efforts for qualitative growth we intend to shift our strategic gear towards the growth of AI and Kakao Talk core pillars, leveraging the energy we have built up over the past year.

First, I would like to discuss AI. While it is clear that AI presents a massive business opportunity for Kakao, it also brings uncertainties as we navigate an unchartered territory. Consequently, starting in 2025, Kakao began conducting various rapid trials and experiments, increasing our probability of success by learning from failures. We initially piloted the studio structure oriented organization within our AI units. This lean and agile operation focused on clear objectives while effectively accelerated the launch of services and products. Based on this, we determined that an organization structure capable of validating service value through [indiscernible] trials is essential for the AI era.

Therefore, as of February 1, we expanded the studio model to the entire AI organization. From this year, each studio aims to develop and deploy new AI features in 1 month cycle established on high velocity execution framework. ChatGPT for Kakao and Kanana in Kakao Talk, both launched last year, are results of the accelerated studio structure.

Regarding ChatGPT for Kakao, I mentioned in the previous earnings call that we secured 2 million users shortly after launch. Net user base has now expanded to 8 million, creating new traffic patterns for searching and generating content that did not previously exist within Kakao Talk. This year, we plan to build multiple touch points to ensure a more natural transition from the core messaging experience to ChatGPT for Kakao. Through this, we aim to secure a significant user base and discover high-utility AI use cases using Kakao's own agent, Kakao tools.

Simultaneously, for Kanana in Kakao Talk, we have been conducting CBTs for small user groups since last year and are seeing great potential in on-device AI. Kakao is a company that holds data where 50 million people's daily conversations, searches, mobility and payments are connected in a single context. This data asset is our core competitive advantage and implementing AI that is most closely integrated into daily life. On-device AI is the optimal way to provide the strongest protection for user privacy while creating new value from the previous -- precious data assets. However, our biggest concern before the CBT was the barrier to entry as users must download the AI model to their local device.

Contrary to our concerns, over 80% of indicated users completed the model download, proving that the download process is not a major obstacle. Furthermore, approximately 70% of current users continue to use the device, which is an overwhelmingly high retention rate for new service. Our internal level analysis shows that the key to this high retention is the AI's role and proactively initiating conversations based on the user's chat context. To date, most global AI services has juggled to produce satisfying results with AI initiative features, thus, most interactions still begin with the user prompting the AI.

In contrast, for Kanana, over 60% of interactions begin with an AI initiated message which effectively drives user lock-in. We have confirmed that the AI's ability to understand, user intent and initiate conversation is a powerful moat that only Kakao can build. Another insight from the CBT is that scheduled reminders and briefing linked to AI initiative messages showed the highest frequency of use.

Next, the most prominent user scenario was commerce. Since a clear business opportunity has been identified, our goal for the first half of the year is to more actively explore context where a transaction can occur. Based on this, we plan to strengthen user scenarios and validate monetization. In the first quarter, we plan to conclude the iOS only CBT for Kanana and officially launched both Android and iOS. Although devices meeting the required specifications currently account for only half of all devices we aim to gather a meaningful number of users post launch by enhancing core features and expanding Service Access Pass.

While expanding user touch points, Kakao is also steadily accumulating research achievements and language models. Last year, we unveiled Kanana [ MOE ], a first in Korea. With 32 billion total parameters, it maintains LLM level intelligence, while actively only the 3 billion parameters necessary for inference, significantly improving computational efficiency. We have successfully internalized high-efficiency language model optimized for agent AI that Kakao aims to implement.

Additionally, we introduced our proprietary multi model, Kanana only, which currently holds top benchmark scores in its class in Korea. On February 2, we created an orchestration benchmark data set to evaluate the planning and execution capabilities of LLM. This is a unique asset held only by Kakao in Korea and was also accepted by [ ICLR ] 2026, one of the world's top 3 AI conferences. As such, Kakao is focusing on developing models that balance cost and performance while supplementing investment heavy LLM through partnerships, steadily evolving on orchestration strategy that organically combined models and services.

To showcase next-generation AI experiences on devices, we have agreed to begin full-scale global collaboration. Today, I am pleased to announce for the first time the strategic partnership between Kakao and Google. As a starting point, we are beginning a collaboration with Google Android to further enhance our on-device AI services. By working that we with the Android development team, we expect to maximize the value of data assets within the Kakao ecosystem. Furthermore, as the financial burden of AI infrastructure increases, Kakao is considering ways to strengthen our infrastructure in the most capital-efficient manner by optimizing various chip lineups beyond GPUs.

Given Kakao's expertise as the only company in Korea capable of effectively utilizing GPUs we are in discussion with Google Cloud regarding the operation of a meaningful scale of [ GPU ] cloud. Lastly, we are beginning a collaboration for the upcoming AI glass. Kakao intends to form hypothesis on how user experiences can change when Kakao services are integrated into various AI board factors creating new AI usage experiences.

Following our AI strategy, I would like to discuss Talk Biz another core growth pillar. Over the past year, Kakao Talk has surpassed service reorganization with the goal of evolving into a super app. As a result, we have seen a qualitative shift in traffic. The time spent on Kakao Talk, which has been stabilizing downward saw a meaningful rebound and remained steady at around 25 minutes as of December. In particular, the AI services introduced last quarter, are creating new user behaviors.

Based on our analysis of the change in user time spent, over the past 2 months before and after using the services for users, for ChatGPT, for Kakao and Kanana and Kakao Talk, the average daily time spent on Kakao Talk increased by a combined total of approximately [ 40 ] minutes. This is a significant early achievement demonstrating that AI services are extending the user time spent within Kakao. Compared to past services, I believe this is one of the most meaningful cases in terms of expanding retention. Given the high contribution to retention time we are seeing, we believe the goal of increasing Kakao Talk user retention by 20% is fully achievable if we expand the AI user base this year.

Next, regarding our advertising business, the Kakao Talk reorganization is a major turning point that turned top display ads to a growth projector. The feed-type ads [indiscernible] in the feed tab are blending naturally into content showing high efficiency in core metrics like clicks and conversions. This was clearly improved advertisers [ ROS ]. Additionally, with the diversification of formats, demand from new industries is rapidly expanding. With the influx of small- and medium-sized e-commerce advertisers, we believe Kakao is establishing itself as an essential marketing platform. We view this not as a temporary effect, but as a structural shift driven by both new demand and improve efficiency.

Consequently, Talk display ad revenue recorded a clear turnaround with 18% year-on-year growth in the fourth quarter. Last year, our annual consolidated revenue surpassed KRW 8 trillion for the first time and operating profit also reached a record high of KRW 732 billion. Our annual operating margin reached 9%, a 3 percentage point improvement year-on-year, clearly reflecting the results of our structural improvements. Based on these achievements, we plan to fully shift our gears towards growth this year. In the short term, we will improve our performance through visible earnings improvements, while simultaneously delivering tangible results regarding Kakao's mid- to long-term growth. We ask for your continuous interest and support for Kakao throughout this year.

Next, Jayden, our CFO will present the 2025 Fourth quarter and Full Year Financial results.

[Interpreted] Hello. This is Jayden, Kakao's CFO. I will present the consolidated financial results for the fourth quarter and the full year. In the fourth quarter, as our high-margin core business, Talk Biz entered a full-fledged growth trajectory we achieved record high quarterly revenue, underpinned by solid growth across the entire platform sector, including Pay and Mobility.

Accordingly, consolidated operating profit came in at KRW 203 billion, exceeding KRW 200 billion for 2 consecutive quarters, and the operating profit margin expanded to 10% which is a 5 percentage point improvement Y-o-Y. We view this earnings improvement as particularly meaningful as it demonstrates that our realignment of core businesses centered on Talk is generating tangible results. To be specific, Kakao's stand-alone operating profit in the fourth quarter comprising adds, commerce and AI was KRW 128 billion with an operating margin of 18%. Excluding operating losses from the AI business, operating profit increased 9% Y-o-Y to KRW 174 billion, with the margin expanding to 24%.

Now turning to the top line. Consolidated revenue for the fourth quarter was KRW 2,133 billion up 9% Y-o-Y and 3% Q-o-Q. Annual revenue for 2025 grew 3% Y-o-Y to KRW 8,099 billion. Platform revenue in the fourth quarter was KRW 1,223 billion, growing 17% Y-o-Y and 16% Q-o-Q. Within this, revenue for Talk Biz, Kakao's core business increased 13% Y-o-Y and 17% Q-o-Q to KRW 627 billion. Breaking this down further, Talk Biz advertising and subscription revenue recorded KRW 373 billion, up 16% Y-o-Y and 15% Q-o-Q. Of this, Talk Biz advertising revenue, excluding subscription, grew 18% Y-o-Y and 16% Q-o-Q to KRW 305 billion.

Starting with business message, revenue continued its solid trend, growing 19% Y-o-Y despite the high base effect from 2024. Following the official launch of brand message in quarter 4, the customer pool available for advertisers expanded and add efficiency improved, leading to an increase in total message volume. Consequently, we saw a full-scale inflow of advertisers from new sectors, such as finance. This allowed business message to record its highest ever revenue for 3 consecutive quarters.

For display ads, revenue grew 18% Y-o-Y. This was driven by the Talk revamp, which expanded ad inventory in slots where users discover content as well as by improved user experience and advertiser efficiency. Beyond simply expanding inventory, we established a distribution structure that brings external advertiser demand into Talk inventory through external DSP integration. This expanded advertiser coverage and optimized ad delivery, ensuring that the inventory expansion translated into actual revenue growth.

Moving on to commerce. Quarter 4 combined GMV reached KRW 3 trillion for the first time on a quarterly basis, rising 12% Y-o-Y and 17% Q-o-Q. For reference, annual combined commerce GMV grew 6% Y-o-Y to KRW 10.6 trillion. Specifically, Talk Gift GMV grew 14% Y-o-Y, reflecting the deferred Chuseok holiday effect from the previous quarter and maximize peak season performance through extended year-end promotions. Notably, for Kakao Shopping [ Festa ], our largest annual promotion held in October, we reinforced curation of popular brand items by category and personalized benefits, expectingly driving new user inflow and purchase conversion. As a result, the number of self-purchase users within Talk Gift grew 22% Y-o-Y and GMV increased 47%, driving overall growth.

Commerce revenue recorded KRW 253 billion, up 8% Y-o-Y and 21% Q-o-Q. Revenue growth for commerce was more limited compared to GMV due to the impact of the expanded promotions mentioned earlier. However, we view this strategic marketing execution as an investment to broaden our user base and strengthen the foundation for future commerce growth.

Next, Platform and other revenue recorded KRW 524 billion, up 30% Y-o-Y and 17% Q-on-Q. Starting with Mobility, revenues saw double-digit growth Y-o-Y driven by top line expansion in parking and quick services, adding to the stable taxi business. As for Pay, it sustained its solid revenue trajectory backed by balanced growth across all sectors, including payment, finance and platform services. Pay's operating profit also achieved a record quarterly high, showing a trend of improvement every quarter since its turnaround in quarter 1.

Turning to the content business. Quarter 4 revenue was KRW 911 billion, remaining flat Y-o-Y and decreasing 11% Q-o-Q. First, [ story ] business revenue recorded KRW 192 billion down 5% Y-o-Y and 9% Q-o-Q. Piccoma revenue decreased 6% Y-o-Y and 11% Q-o-Q in yen attributable to the market slowdown in the Japanese manga sector, coupled with the lack of new blockbuster titles. In this environment, over the past year, Piccoma focused on maximizing marketing efficiency rather than engaging in excessive spending competition. This significantly improved profitability. And as a result, annual operating profit exceeded JPY 10 billion for the first time.

Moving to Music. Revenue rose 12% Y-o-Y, but did 7% Q-o-Q to KRW 525 billion. On a Y-o-Y basis, solid performance in merchandise and licensing continued, increasing the contribution from IP-based businesses. However, revenue declined Q-o-Q as album sales slowed due to seasonal factors and the base effect from major artist activities concentrated in quarter 3.

Finally, Media revenue recorded KRW 96 billion, while it grew 30% Y-o-Y due to continued expansion of production revenue recognition following the previous quarter, it remained similar Q-o-Q.

Now let's look at operating expenses. Quarter 4 operating expenses were KRW 1,930 billion, up 3% Y-o-Y and 4% Q-on-Q. Labor costs were flat Y-o-Y as we maintained a conservative hiring stance, but increased 6% Q-o-Q to KRW 497 billion, due to bonuses at subsidiaries and a rise in incidental labor costs, including social insurance. Marketing expenses recorded KRW 116 billion, up 13% Y-o-Y and 60% Q-o-Q due to concentrated marketing activities by Piccoma and Kakao Pay in quarter 4. The ratio of marketing expenses to annual consolidated revenue was 4.8%, keeping our promise to stay within the 6% range made at the start of the year. As for revenue-linked expenses, they increased 18% Y-o-Y due to the base effect from the reclassification of annual album production costs to outsourcing fees in the same period last year. On a Q-o-Q basis, it increased 4% to KRW 768 billion due to changes in the Music business revenue mix. The ratio of revenue-linked expenses to consolidated revenue was maintained at 36% for both quarter 4 and the full year, consistent with the previous quarter.

Outsourcing and infrastructure expenses decreased 13% Y-o-Y due to the base effect of the account reclassification last year and decreased 4% Q-o-Q to KRW 250 billion, reflecting the base effect of strong album sales concentrated in quarter 3. Amortization expenses decreased 17% Y-o-Y due to the base effect of one-off bad debt expenses reflected by Kakao Pay last year and decreased 2% Q-o-Q to KRW 204 billion. Consequently, [ Core 4 ] consolidated operating profit was KRW 203 billion with an operating margin of 10%. And on an annual basis, it was KRW 732 billion with an operating margin of 9%.

Moving on to nonoperating items. Quarter 4 nonoperating loss totaled KRW 243 billion, we recognized impairment losses on goodwill of KRW 128 billion and impairment losses on intangible assets of KRW 105 billion, with most losses stemming from the Content business sector. Regarding corporate tax, the expense was KRW 20 billion in quarter 4, while we recorded a net loss of KRW 39 billion, impacted by the recognition of KRW 20 billion in net income from discontinued operations due to the deconsolidation of Kakao Healthcare. Net profit attributable to controlling interest improved by KRW 268 billion Y-o-Y to KRW 43 billion.

However, on an annual basis, driven by expanded operating profit and reduced goodwill impairment, we recorded a net profit of KRW 526 billion, achieving a turnaround Y-o-Y. Net profit attributable to controlling interest improved to KRW 446 billion to KRW 501 billion.

Finally, on CapEx. Quarter 4 CapEx was KRW 195 billion, increasing KRW 87 billion Y-o-Y and KRW 11 billion Q-o-Q. Annual CapEx totaled KRW 616 billion, an increase of KRW 110 billion Y-o-Y driven by expanded investments in new tangible assets by subsidiaries.

This concludes the presentation of the fourth quarter and full year earnings for 2025, we will now proceed to the Q&A session. As the time is limited, we kindly ask you to limit your questions, 2 per person.

[Interpreted] [Operator Instructions] The first question will be provided by Eric Cha from Goldman Sachs.

[Interpreted] I have 2 questions for you today. You have today announced your new partnership with Google. Can you also then give us an update as to what your current existing cooperation with OpenAI is ongoing? Would there be any difference or change going forward or any cannibalization with the current as is partnership with OpenAI.

Second question relates to your strategy regarding the Agentic AI. I would like to know whether you are expanding your partnership with outside third-party stakeholders.

[Interpreted] This is Shina, responding to the first and the second question. First, in terms of our partnership with Google, based on on-device approach, we're focusing on scaling up user experience from the device perspective, and we're testing different Kakao's different service experience on new form factors as well.

From a midterm perspective, we believe that in order to maximize our strength, we wish to build a collaborative framework generating synergies in specific areas where only Google is good at in order for us to identify and find AI-driven business opportunities.

Now in terms of our collaboration with OpenAI, we can tell you that our partnership is solid as we continue to work together on B2C AI services based on ChatGPT. So basically, that will help us leverage the world's biggest B2C user base. And also after the rollout of ChatGPT for Kakao, we are focusing on service stabilization.

From this year onwards, we will further strengthen the connection between the conversation context of Kakao Talk and ChatGPT, and we will further reinforce collaboration with OpenAI as we go forward. As such, we will work with Google on device experience and with open AI on the domain of AI B2C, establishing a partnership structure without an overlap. Now so rather than doing everything on our own through such global collaboration, we believe that this strategy really helps to cover the entire AI layer and at the same time, is the best way for us to optimize direct investment.

As we move forward, we will continuously internalize the lightweight LLM capabilities internally, which is key to Kakao service competitiveness and focus on AI service that our user base can use in their daily lives. At the same time, go beyond the uncertainties of the AI age, we are going to bring tangible results, meaning the expectations of people expectations that people have on Kakao's AI and we will nimbly respond to this coming age by flexibly making users the off-platform external partnership.

Responding to the second question on the external expansion of Agentic AI system. Now this year will be a key area for us in building the Agentic AI ecosystem. And as I have mentioned last year as a CEO, this actually is one of my key tasks as well. By the end of the year, many partners will connect to Kakao's AI platform, Agentic AI platform through PlayMCP, an agent builder by the end of the year. And capitalizing on Kakao's strong context-based moat as the starting point, investors will be able to see the early shape of how the Agentic commerce turns into actual services.

So as I've mentioned in my opening presentation, we are seeing active interaction between users and AI agent taking place inside the commerce domain from the Kanana and Talk beta test. Now based on this data, we are talking to leading domestic vertical commerce players, and actually, not only domestic but global top-tier players have shown interest in joining the ecosystem as well. And so we believe and currently, the discussions are ongoing. So we believe that within the first half of the year, we will be able to onboard at least or actually more than 3 key players who could play a pivotal role in building the Agentic AI ecosystem. And these agent features will be rolled out sequentially through Kakao's AI services. And currently, such AI service is working as a key customer touch point.

And this year, we are expecting to see a significant expansion of the user base with high velocity. And also this year will be an important year for us because we will be bringing together the AI service expansion and the agent feature usage. These 2 factors will come together in driving the service value as well as usability for AI services.

Next question, please.

[Interpreted] The following question will be presented by Jee-un Lee from Daishin Securities.

[Interpreted] I have 2 questions that I would like to ask. Thank you very much for that update on your new business endeavors under AI services. But now I would like to know as to what the target or the guidance is in terms of your top line revenue and profit for 2026?

Another question that I have is with regards to your Talk Biz growth estimate going forward because there was an impact of robots back in Q4. So I'm just wondering whether you will be able to sustain the growth of your Talk Biz going forward.

[Interpreted] Responding to your question on the guidance. In terms of the Talk Biz revenue, basically, we compared to what we had actually planned we were able to achieve a double-digit growth earlier on in Q3. And in Q4, we were able to report a higher growth rate at 16%. Such [indiscernible] growth was driven by structural change that in the second half of the year. And we expect that this trend will continue into this year, contributing to a consolidated basis, operating profit enhancement.

Now we will continue to make investments into AI within the scope that does not undermine profitability, and that will help us obtain investment efficiency. Kakao will focus on expanding the AI service user base and also, at the same time, implement the Agentic AI which I had just previously explained. Now through this strategy, this year will be the year for us to really build the foundation and basis for AI monetization and business, and we plan to generate meaningful revenue starting next year.

Now also with solid growth this year and as well as improvement in profit for Kakao Pay, contributions to the total consolidated basis operating profit, we believe is going to continue to expand. In terms of the content segment, marketing spend and business structure rationalization will take place in full consideration of the market situation and the market backdrop in order for us to manage a short-term stable profitability. For Music and Piccoma, using the IPs, we will expand the derivative business in order to expand mid- to longer-term growth engine.

So all in all, this will be a year for Kakao entering into a growth phase in full swing. So -- and start of revenue as well as profit improvement. On this basis, we will be targeting above 10% growth in annual consolidated revenue and OP margin of 10% in 2026.

In terms of our Talk Biz advertisement business, going forward on the growth strategy, which is our key pillar of this year's growth. Now if you take a look at business messaging, we are targeting a double-digit growth based on a ramp-up expansion of brand messaging, which was launched last year. Now after the launch, we are seeing that advertisers are able to serve tailored communication to not only top channel subscribers but to their current customer base on whom the brands have their own customer data. So now these messages are more than just that, but an effective tool that drives repurchases and that builds relationship with the consumer base. And thanks to this change, we're quickly building best cases in terms of ad efficiency improvement and more advertisers are adopting brand messaging. Last year, it actually became the biggest revenue model inside the Talk Biz ad, but still, we think more than 2x expansion is possible.

Now moving on to display ad. Q4 last year on top of the ad inventory slot expansion and advertiser demand growth based on ad tech, basically, it drove the Q4 DA growth and strategies for improving the advertisement efficiency. This virtual cycle will drive performance and be a key engine for us this year as well.

On top of this, we expect that with the official launch of AI moment, which actually is an advertisement -- advertiser support model. We believe that this will be able to provide analytics on the AI-related marketing performance and recommend improvement to the advertisers. And this, we expect will drive a quality-driven growth.

And also from the second half of the year, the commerce ad inventory slot, which was only sold based upon the impression basis, will shift and will go through certain changes and adopt on open structure, adopting a bidding process that is on the performance ad. We believe that this will significantly help the monetization of the commerce slots inside the Talk and we'll really be able to further increase the contribution made by the advertisement revenue.

Also, with the release of AI services, our people or the users are going to become more familiar with its use inside the Kakao Talk platform. And we believe that this will bring us a significant mid- to longer-term growth potential and expansion into the search domain. So combined by a solid growth of business messaging as well as display ads being our key pillars behind growth, our Talk Biz advertisement in Q3 of last year actually regained the growth rate of double digit. And our objective is to, on a per annum basis, sustain that trend in 2026.

At the same time, we are going to expand our portfolio from commerce to search ad domain, and we will implement various different initiatives to achieve that mid- to long-term growth.

Due to the time constrained, we will take the final question.

[Interpreted] The last question will be presented by [ Min-Joo Kang ] from Bernstein.

[Interpreted] This is [ Kang Min-Joo ] from Bernstein. Two questions. First is based upon your current business position, I would like to understand what your outlook for Q1 is? And also, can you provide some more color on where you stand in terms of ROE? Because last year, you communicated your ROE related objective. Where is your ROE at this point? And what is your outlook?

[Interpreted] Now responding to your question on our first quarter outlook, we believe that Q1 is going to be our first milestone where we start to see tangible results come through based upon the efforts that we've put in last year. More specifically, if you look at our platform business, Talk Biz ad, Pay and Mobility across the board, we are expecting a double-digit top line growth supported by margin improvement as well.

In terms of Talk Biz ad through marketing efficiencies, we are seeing advertisers budget concentrate mainly around Kakao, and we are seeing a much stronger growth momentum. On the content side rather than focusing on the short-term earnings or performance are focusing on realigning the IP lineup and also making the business structure more efficient so that we may regain mid- to long-term competitive resilience.

Now on the cost side, as we start to ramp up and prepare for a full-fledged growth, certain fixed cost items like depreciation and infrastructure-related expenses, there may be a time lag between the expense and the actual outcome that we are able to gain. So in Q1, the profit on a temporary basis may show some variability, but that will still be within the annual guidance that we have previously communicated. So I can assure you that all of the executions are ongoing as planned towards achieving the annual target.

Starting the second quarter, we believe that the improvement in profitability and structural growth underpinned by platform mainly is going to start to emerge and every quarter, we will see that the burden on fixed cost will alleviate quite rapidly, and we will be able to see a recovery trajectory on a quarterly profit basis.

Moving on to the question on ROE and where we stand. Last year, around this time, we communicated that we will ensure financial stability through business structure efficiency and also priority based resource allocation so that we could mitigate in stages the uncertainties that we see on the nonoperating side, thereby improving the ROE.

Now looking back on quarterly profit for FY 2025, starting the second quarter, we started gaining more visibility in operating profit improvement. And in Q3, we were able to achieve record high quarterly OP. The improvement that we've seen on operating profit in Q2 and Q3 is due to the across-the-board cost efficiencies that the company was able to achieve as well as outperformance in our Music business, top line, which outperformed the estimates that we had.

At the same time in Q4, the reason why we were able to do more than KRW 200 billion in operating profit, is because of the recovery of the top line from our advertisement business, which actually has the highest level of profitability following the Talk revamp. All in all, annual operating profit for 2025 hence actually posted a 48% year-on-year growth, reporting KRW 732 billion. At the same time, the biggest factor that impacted our net income line item was actually the goodwill impairment, and we are almost at the end of that cycle. So we were able to significantly reduce the variability that and the volatilities that we've seen on the nonoperating accounts. As a result, 2025, the net income attributable to controlling interest actually improved or went up by KRW 445.6 billion year-over-year and ROE improved 3.9 percentage points year-on-year, reporting 4.4%.

Now so for this year, we believe that structural and secular growth will start to feed in from our advertisement business, which our core pillar. And at the same time, in AI side, we will lay the foundation for monetization and capitalization of our capabilities. Supported by these factors, starting next year, we will be able to downsize on the size of the loss that is incurred.

In terms of the subsidiaries that we have, we are improving on the governance and also making the cost structure more efficient through which we wish to secure a growth engine for secured new growth engine. And supported by all of these factors, we think that for this year, we will be able to sustain a sound profit uptrend. On top of this, we will be making different tools under shareholder returns, such as dividend payout and share buyback so that we can make our capital structure much more efficient. So by having a structure where we could actually drive growth at the controlling interest level as well as making our capital structure much more efficient we will be able to achieve our midterm ROE target that is commensurate with what our peers are showing. Through these efforts, we are committed to achieving these improvements.

[Interpreted] This brings us to the end of the Fourth Quarter and Full Year 2025 Earnings Conference Call of Kakao. Thank you, investors, for joining us.

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

[Interpreted] Good morning and good evening. Thank you all for joining today. We will now begin Kakao's Q3 2025 Earnings Conference Call. This conference will start with the presentation followed by a divisional Q&A session.

[Operator Instructions]

I will now turn it over to Kakao.

[Interpreted] Hello. I'm Jeffrey from Kakao IR. Let's begin with the third quarter 2025 Earnings Conference Call. Today, I am joined by Shina Chung, the CEO; and Jayden Shin, the CFO. 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. Also, forward-looking estimates are based on assumptions, so actual results may differ from figures included in today's presentation. Now we will have a presentation from CEO, Shina Chung.

[Interpreted] Good morning. This is Shina, CEO of Kakao. Before going into the details of our third quarter results, let me first briefly touch on the Kakao Talk revamp that took place in September. As this was the largest revamp since Kakao Talk's launched 15 years ago, users have shared a wide range of feedback. Kakao is carefully listening to those voices and will continue to make ongoing improvements, including the Friends tab rebound scheduled for the fourth quarter. At the same time, since Kakao's routes, lives and messaging, we will also actively enhance the core messaging experience by gradually introducing many of the customized convenience features that users have long requested.

First, we plan to further strengthen the custom folder feature, which allows users to organize numerous chat rooms within the chat tab according to purpose and view different type of conversations at a glance. Similar to the unread folder that has already been introduced, users will soon be able to categorize their chat room into various folders such as family or work according to their own needs. Within those folders, favorite rooms will be automatically sorted for easier access, providing a more comfortable and organized user experience. Also, we applied the AI summary service to the unread folder and are currently monitoring user reaction. Once its utility is verified, we plan to gradually expand it to additional areas. This service allows AI to summarize the vast number of messages exchanged across multiple chat rooms so that users can easily grasp the flow and key points of conversation across different chats without having to open each 1 individually, creating a far more efficient messaging environment. Through the remainder of this year and into 2026, Kakao will continue to humbly listen to use our feedback striving to find the right balance between preserving the stability of the existing service experience and driving platform innovation that fuels sustainable business growth.

Next, I'd like to talk about AI. Another key pillar driving Kakao's growth. Last quarter, Kakao announced its vision of AI for everyone with the goal of enabling all users in Korea to experience AI seamlessly within Kakao Talk. As a result of these efforts, we are proud to introduce 2 significant milestones in October. The one on device AI service, Kanana in Talk and ChatGPT for Kakao jointly developed with OpenAI. Over the past year, Kakao has transformed its organizational work structure into an AI studio designed to encourage diverse experimentation. Small agile teams now build MVPs rapidly validate user feedback and market potential and continuously experiment with new AI services.

Last week, we launched ChatGPT for Kakao, a powerful integration between Korea's most dominant Messenger platform and the world's most widely used AI service, located directly within Kakao Talk [indiscernible] chat where millions of users engaged multiple times a day, ChatGPT for Kakao offers unmatch accessibility, allowing anyone to use it quickly and easily. This service is powered by the GPT-5 model. And as ChatGPT models are updated in the future, those upgrades will be applied simultaneously ensuring that users can always experience the latest version of ChatGPT within Kakao Talk. ChatGPT for Kakao is deeply integrated into the chat experience. Whenever a user has a question during a conversation, they can instantly ask ChatGPT and share its response directly within the chat room. In addition, [indiscernible] Kakao's proprietary agent, Kakao tools, users can connect seamlessly to a wide range of Kakao services and perform desired actions immediately without complex menu navigations or switching between apps, offering a truly integrated agent experience. Although still in its early stage, ChatGPT for Kakao has already shown strong momentum with cumulative user numbers rising rapidly. The average number of messages that per active user and overall time spent within the service are also clearly trending upwards.

As Kakao tool becomes connected to more services, we expect AI experience in users' daily lives to expand further, leading to a greater use of user engagement and longer time spent within Kakao Talk. Kakao's ultimate goal for its AI services is to realize agentic AI on an autonomous and proactive intelligence, they can set its own goals, plan ahead and act flexibly based on context and circumstances. While the conventional AI is a unit-type artificial intelligence designed to precisely carry out a single goal or task, agentic AI can precisely understand users intact within context, combine multiple agents to determine the best path towards achieving higher level objective and make its own decision to act accordingly. This year, Kakao took its first important step towards realizing this vision of agentic AI. To begin with, Kakao has established 2 key services, top 20. Kanana and Talk and ChatGPT for Kakao that enable accurate understanding of user intent within conversational context. Kakao Talk already holds a uniquely rich conversational data set that no other platform can replicate. Kanana and Talk powered by Kakao's on-device AI model can proactively understand users' needs in the safest possible way and suggest relevant information or actions even before being explicitly asked.

Meanwhile, through ChatGPT for Kakao, users can directly request information or actions from the AI agent whenever they need to. Next year, Kakao will continue expanding those touch points between users and agents, introducing additional services such as Kanana search which will further enhance our ability to understand user intent and context. As explained earlier, once user intent is identified across various service touch points, numerous specialized agents, each with own area of expertise, communicate and collaborate to perform the necessary actions to fulfill users' needs. For this reason, the active participation of agents specialized in different verticals within the ecosystem represents another key pillar in building agent AI. The Kakao tools introduced alongside last week's launch of ChatGPT for Kakao represents an early form of Kakao's AI agent. Currently, agents from Kakao [indiscernible], Kakao Gift and [indiscernible] are already integrated, and we plan to expand connections to key B2C verticals within the group such as finance and mobility in the near future. Furthermore, through Play MCP and Agent Builder, Kakao is establishing an open platform for AI agents and technological foundation that allows anyone regardless of size or capability to participate in the agent AI ecosystem under Kakao's trusted authentication and security framework. Building on this foundation, starting next year, we plan to rapidly expand the AI ecosystem by connecting a diverse range of external tools and agents beyond the Kakao Group.

We take great pride in being ahead of anyone else and realizing agent AI. As mentioned last quarter, we are moving beyond a time when users had to search for apps and navigate complex menus. We expect a rapid shift to models where services are delivered and executed simply through conversations with AI agents. Starting this quarter, Kakao will connect more users with a broader range of services, building agentic AI that enables users to accomplish tasks and complete actions through conversations alone. Once users experience this level of convenience, it will become an irreversible way of interacting with services. Though we are still in the early stages, we will advance step-by-step and firmly establish Kakao as Korea's leading growth company in the AI era.

Next, Jayden, our CFO, will present the third quarter 2025 financial highlights.

[Interpreted] In the third quarter, Kakao recorded its highest ever quarterly revenue for 2 consecutive quarters, driven by continued solid growth in the Platform segment and better-than-expected performance in the content segment. Furthermore, we are delivering on our commitment to achieve growth worthy of a true growth stock with consolidated revenue growth to around 9% for the first time in 6 quarters. In line with this momentum, operating profit surpassed KRW 200 billion for the first time ever, driven by group-wide efforts to enhance operational efficiency and accelerated top line growth bringing our operating margin to 10%, the highest level in 4 years.

Now moving on to our revenue for this quarter. Consolidated revenue for the third quarter was KRW 2,086 billion, up 9% Y-o-Y and 3% Q-o-Q. Platform revenue for the third quarter was KRW [ 1,598 billion ], growing 12% Y-o-Y and remaining at a similar level Q-o-Q. First, Kakao's core business Talk Biz recorded KRW 534 billion, up 7% Y-o-Y, but down 1% Q-on-Q. Under Talk Biz advertising, business messaging continued its strong momentum, while display ads, which had been sluggish rebounded resulting in revenue of KRW 325.4 billion, up 11% Y-o-Y and 1% Q-on-Q. Business Messaging revenue grew 22% Y-o-Y, achieving another record high quarterly revenue following last quarter, as we continue to expand the range of message formats available for advertisers, particularly in the financial sector.

And as Kakao Talk was widely utilized as a major marketing channel, local incentive programs led by the government, which drove a notable increase in message volume. We believe business messaging has now entered a virtuous growth cycle as not only the number of advertisers is increasing meaningfully but existing advertisers. Having experience, the efficiency of message ads are also significantly expanding their message volumes. Accordingly, we expect the strong growth trend of business messaging to continue into next year rather than being a one-off in the third quarter.

Meanwhile, display ad revenue posted a meaningful turnaround, returning to growth for the first time in 5 quarters despite the third quarter being a seasonally weak period. This was driven by enhancements to the competitiveness of existing ad inventory and diversification of ad products within Kakao Talk. Next, total commerce GMV reached KRW 2.5 trillion, up 4% Y-o-Y and 1% Q-o-Q. Revenue came in at KRW 208.7 billion remaining similar Y-o-Y, but decreasing 6% Q-o-Q. Talk Biz GMV increased 1% Y-o-Y despite the Chuseok holidays, a seasonal peak happening in October this year, shifting the seasonal effect from the third quarter to the fourth.

Additionally, as some orders placed at the end of September were delivered and recognized in October, revenue recognition was also affected. In the fourth quarter, we expect both GMV and revenue growth to accelerate again, reflecting deferred transactions from the third quarter and the additional boost from year-end seasonality. Meanwhile, self-purchases the new growth driver of Talk Gift maintained solid growth.

In the third quarter, we strengthened promotions by introducing exclusive product lineups and new items from popular brands for the first time. As a result, the number of self-purchase users increased 19% Y-o-Y and self-purchase GMV rose 40% Y-o-Y. As the share of self-purchase GMV continues to rise meaningfully within Talk Gift, we will continue to drive growth in commerce centered on the 2 growth pillars of stable gifting demand and expanding self purchases.

Moving on, portal revenue was KRW 72.7 billion, down 5% Y-o-Y and 7% Q-o-Q. The portal business plans complete the transfer of operations to the newly established subsidiary, AXZ by year-end without delay, after which we will share more detailed strategic directions.

Next, Revenue for Platform Other was KRW 452.7 billion, up 24% Y-o-Y and 4% Q-o-Q mainly driven by solid performances from Kakao Mobility and Kakao Pay. In the third quarter, Kakao Mobility continued its model of growth of providing its platform and operational know-how to regional taxi operators, enabling them to operate their own franchise businesses. Also, Kakao Pay achieved its highest ever quarterly operating profit, driven by accelerated revenue growth from financial subsidiaries including securities and insurance as well as strong performance from data-driven platform services.

Now moving on to the content segment. The consolidated revenue was [ KRW 1,267 billion ], up 5% Y-o-Y and 6% Q-o-Q. The overall story business revenue of Kakao Entertainment and Piccoma recorded KRW 211.4 billion, down 3% both Y-o-Y and Q-o-Q. For Kakao Entertainment, we remain focused on maintaining its profitability-oriented management approach. Second, amid intensified competition in Japan's comic market since last year, Piccoma has been leveraging its unique platform competitiveness to build a foundation for sustainable growth.

This quarter, Piccoma strategically refrained from excessive marketing and instead focused on selective campaigns aimed during the summer vacation period, enhancing user engagement and spending within the platform. As a result, Piccoma achieved its highest ever quarterly revenue in yen, maintained its position as the #1 grossing app in Japan's app market year-to-date and nearly doubled its operating profit Y-o-Y. Secondly, the music revenue within the Content division was KRW 565.2 billion up 20% Y-o-Y and 9% Q-o-Q. Solid performances by major artists, coupled with growth from newer artists helped smooth quarterly activity fluctuations and drive consistent results. In addition, our music division strengthened project-based merchandise and off-line pop-ups to expand fan experiences, thereby establishing a virtuous cycle in our IP business. Lastly, media revenue was KRW 95.8 billion, up 75% Y-o-Y and 2% Q-on-Q. This growth was driven by the recognition of deferred work and higher production progress, resulting in a significant Y-o-Y increase from a low base, while remaining at a similar level Q-o-Q.

Wrapping up on our revenue. Operating expenses for the third quarter were KRW [ 1,878.5 billion ], up 5% Y-o-Y and 2% Q-on-Q. Labor cost was KRW 477.4 billion, up 4% Y-o-Y, but down 2% Q-o-Q. The Y-o-Y increase was due to higher bonuses reflecting subsidiaries' first half performance and higher employee-related costs, including social insurance, while the Q-o-Q decline reflects our continued conservative hiring stance across the group. Marketing expense was KRW 101.8 billion, down 3% Y-o-Y, but up 16% Q-o-Q as marketing activities expanded across subsidiaries. Marketing accounted for 5% of consolidated revenue both in the quarter and cumulatively year-to-date, in line with our initial annual guidance within the 6% range. Revenue linked costs were KRW 747.7 billion similar Y-o-Y, but up 4% Q-o-Q, reflecting higher settlement expenses linked to increased content revenue.

The ratio of revenue-linked cost to consolidated revenue stood at 36%. Outsourcing and infrastructure costs totaled KRW 260.7 billion, up 34% Y-o-Y and 12% Q-o-Q due to subsidiary account reclassifications from last year and higher infrastructure spending related to the launch of AI services. Depreciation and amortization expenses were KRW 208.3 billion, down 1% Y-o-Y and 6% Q-o-Q. The Y-o-Y decline reflects partial reversal of bad debt expenses, while the Q-on-Q decrease is due to the high base from content license, amortization at Kakao Entertainment in the previous quarter.

Overall, consolidated operating profit for the third quarter was KRW 208 billion with an operating margin of 10%, improving by 3 percentage points Y-o-Y. Going forward, we will continue to pursue structural improvement in profitability based on an optimized cost structure. Nonoperating income for the third quarter was KRW 46.6 billion, up KRW 41.4 billion Y-o-Y and KRW 37.6 billion Q-on-Q. The Y-o-Y improvement was mainly due to the base effect from one-off bad debt expenses at Kakao Pay last year and reduced interest expenses following the repayment of exchangeable bonds.

Equity method gains were KRW 19.6 billion, similar to both the previous quarter and the same period last year. Corporate income tax for the third quarter was KRW 61.8 billion and consolidated net income was KRW 192.9 billion. Lastly, CapEx totaled KRW 178.4 billion, including KRW 144.1 billion for tangible assets and KRW 34.3 billion for intangible assets. CapEx increased KRW 89.8 billion Y-o-Y and KRW 78.9 billion Q-o-Q, mainly due to new asset purchases by subsidiaries and expanded server investments required for Kakao Talk service operations.

This ends the presentation on quarter 3, 2025 earnings. We will now move on to Q&A. Because we have limited time, please be ask that you refrain from asking more than 2 questions.

[Interpreted] [Operator Instructions]

The first question will be provided by Hee-Seok Lim from Mirae Asset Securities.

[Interpreted] I do have 2 questions. Number one, since the September Kakao Talk renewal, I would like to ask what the user engagement was like? And also moving on to the second question. As in the third quarter is double-digit growth in the advertising business achievable in the fourth quarter, in line with the initial guidance.

[Interpreted] Yes, I would like to take your first question. Let me briefly update you on the key changes in user engagement following the Kakao Talk revamp. During the exceptional period of the COVID-19 pandemic, the average daily time spent on Kakao Talk user increased by only about 10 seconds. Based on that experience, we internally assess that it would be quite challenging for a messenger type platform to increase user time spent.

However, after the update, we confirm that a rebound in user time key KPI compared with the pre revamped third quarter average, the average daily time spend has increased from the 24-minute range to a level nearing 26 minutes. We consider it meaningful that time spent, which had been steadily stabilizing downward has begun to turn upward for the first time.

While traffic in the [indiscernible] chat remains robust, the time spent in the friends chat and the Now chat, which largely consists of content exploration and discovery traffic has increased by more than 10% compared with the third quarter average after the revamp. We view it as a particularly positive that platform traffic, which had previously been heavily concentrated within chatrooms, is now expanding into non-chat tabs thereby improving the overall quality of traffic across the [indiscernible] chat platform.

As noted in my opening remarks, we will continue to enhance Kanana Talk's core chat functionality by providing greater convenience to users and by incorporating diverse feedback to continuously improve the platform. Through these efforts, we aim to reinforce various usage contexts that encourage users across the country to spend more time on Kakao Talk.

Last but not least, we believe that the post revamp increase in time spent is now just starting. We will do our utmost to achieve the 20% increase in Kakao Talk time spend that we communicated at the beginning of the year.

[Interpreted] I will address the question regarding the achievability of our Q4 advertising guidance. To state the conclusion of funds, we expect to comfortably deliver the double-digit year-over-year growth in top Bs, advertising revenue for the fourth quarter that we committed to at the beginning of the year. As I've advanced in our Q3 results, advertising growth has reaccelerated as a result of the solid fundamentals we have steadily built within the platform.

First, with respect to business messages, as mentioned in my opening remarks, we believe the current high growth trajectory is sustainable. In addition, despite the prolonged slowdown in the domestic advertising market during the Q3, it is meaningful that display advertising exited its 5-quarter trend of negative growth and returned to an upward trajectory. This stems from our continued efforts to enhance the competitiveness of advertising products within talk. In addition, during the Q3, we observed some advertisers reallocating budget previously assigned through competing platforms to Kakao.

[Interpreted] Since the Kakao Talk revamp at the end of September was rolled out to users progressively over the course of a week. The impact of the new product lineup optimized for the newly created inventory for Kakao Talk was barely reflected in Q3. Nonetheless, Kakao's advertising business achieved a record high quarterly revenue in the third quarter and September recorded the highest monthly revenue on record. Based on this momentum, we expect that starting in the fourth quarter, our growth rates will demonstrate that Kakao's advertising business has entered a structural growth base.

[Interpreted] The following question will be presented by Seokoh Kang from Shinhan Investment and Securities.

[Interpreted] I also have two questions. First of all, last month, ChatGPT for Kakao and Kanana in Kakao Talk were launched. Could you share the initial metrics for these 2 AI services? My second question is, I believe that there is a lot of opportunities in terms of business in the area of AI. So what are catalysts plans for external partners to participate in the Agent ecosystem? What are your detailed strategies?

[Interpreted] First, with respect to Kanana in Kakao Talk, we are gauging user acceptance and receptiveness to our on-device AI model based on positive feedback from core users. However, as we are currently operating a CBT with limited features for a small user group, we believe it is too early to say and share quantitative performance metrics. We plan to officially open the service in the first quarter of next year to all users with compatible devices, and we will provide more detailed metrics once the service is fully rolled out.

With respect to ChatGPT for Kakao, as mentioned in my opening remarks, the service still in its early days and full-scale marketing has not yet begun. Nevertheless, as of yesterday, 10 days after launch, the number of users who agree to the terms and began using the service exceeded 2 million. Supported by initial service stability and strong accessibility, both outbound messages per active user and time spent are showing a pronounced upward trend, which we consider quite encouraging.

In particular, the average daily time spend per active user reached approximately 4 minutes as of yesterday. The fact that average time spent per active user has increased to this level indicates that with the launch of AI services, such as ChatGPT for Kakao and ChatGPT talks usage tox usage is beginning to extend beyond simple messaging toward more exploration and search-driven behaviors.

Although these changes are still at a very early stage, we believe that the signal the potential for a substantial increase in overall time spent on Kakao Talk. In addition, as marketing activities and increasing user awareness of the service began this week, we expect the related metrics to show a more pronounced upward trajectory.

Given that the service is still in its initial phase, our immediate priority is to ensure that more users can naturally experience and become familiar with AI in their daily lives through Kakao Talk. Once a solid user base is established, we plan to begin expanding paid subscriptions and accelerating product enhancement toward the end of the year. Even if not all users convert to paid plans in the near term, we believe it is meaningful that users are beginning to normalize search within talk and are spending more time on the platform itself.

This signals that Kakao Talk is evolving beyond a simple messenger and is generating new usage experiences and traffic. We believe that these shifts will ultimately translate into greater scalability and monetization potential for Kakao's AI services over the long term.

Now moving on, let me briefly address Kakao's external expansion plan for the agency ecosystem. Now that we have begun establishing touch points between users and agents within Kakao Talk, one of my highest priority agendas as CEO is to fully expand the agent ecosystem and enhance the everyday convenience that users experience the group through Kakao's AI.

Kakao intends to expand the agentic ecosystem beyond Kakao by leveraging the strong B2C service portfolio held by Kakao Group companies. starting next year for vertical services that Kakao does not currently operate but that users rely on daily and frequently, we plan to engage directly with short head partners regarding participation in the ecosystem while addressing the long tail segment through an agent marketplace.

As briefly mentioned in my opening remarks, we plan to actively expand and open agent ecosystem centered on Play NGP and the agent builder to rapidly broaden the participation from partners of various sizes. Based on this foundation, we aim to narrow the gap between services that users want to engage with and the many services that seek to reach users, thereby building an ecosystem that can meet emerging user behaviors and needs in the AI era.

For the short head segment, although we are still in the early stages, and it is premature to provide specific details. We are already receiving interest and partnership increase from key partners in major verticals that users rely on daily and frequently, including commerce, finance and trouble. Beginning next year, we expect to demonstrate the participation of leading industry players in the AI ecosystem that Kakao is building.

[Interpreted] because of time constraints, we will take 1 final question. The last question will be presented by [ Menda Kang ] from Bernstein.

[Interpreted] And first of all, congratulations on your performance. I have 2 questions. First of all, the third quarter operating profit was very strong. Were there any one-off gains reflected and also, what is your guidance on your fourth quarter outlook? Do you think that the achievements from the second quarter and third quarter will continue on into the fourth quarter?

[Interpreted] We did not identify any notable one-off items in the third quarter results. As in the second quarter, structural profitability improvements across our fits were a key driver of the strong performance in the third quarter. In the Platform segment, operating profit contribution from platform and others improved significantly. And in the content segment, Piccoma and SM Entertainment also delivered substantial -- substantially higher operating profit contributions.

Let me also address the fourth quarter outlook. In the Platform segment, we expect positive results across take advertising and commerce as well as in mobility and pay with Platform other. As mentioned earlier, we estimate that top advertising will deliver year-over-year revenue growth of more than 10%. In commerce, we expect a higher year-over-year revenue growth rate than in the third quarter. supported by the recognition of deferred holiday gift demand from the previous quarter and the continued strong growth of self-purchase GMV within the Talk Gift service.

In mobility & Pay, we expect revenue growth to be driven by the quick parcel delivery service and the securities business emerging as new growth engines. At the same time, continued cost optimization that should further expand their contribution to consolidated operating profit within the Platform Other segment. By contrast in the content segment, which have performed better than initially expected through the third quarter, we expect a quarter-over-quarter revenue decline.

In games, the gap in the new title contributions is extending longer than anticipated and revenues from existing titles are stabilizing at lower levels, which is expected to continue placing pressure on profitability. In the Music segment as well, we expect an overall slowdown in business momentum to be unavailable due to seasonal softness.

On the cost side, it is true that profitability pressures have increased as we continue to scale investments in core businesses, essential for Kakao's sustainable mid- to long-term growth. However, these investments are being executed within the range anticipated at the beginning of the year, and we are consistently working to establish an efficient cost execution framework to ensure that overall profitability remains intact.

[Interpreted] This concludes the conference call of Kakao Corporation for Q3 2025. Thank you for your attendance.

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