Kakao announced on August 21 that it will split its business into two divisions: artificial intelligence (AI) and investment. The existing Kakao will remain as the holding company 'Kakao AI,' while the investment-related operations will be separated into a newly established entity called 'Kakao X.'
The investment division will be led by Chief Investment Officer Kim Do-young, while the AI division will be headed by Jeong Sin-a. The success of this split hinges on the performance of both leaders in their respective areas, drawing significant industry attention to their execution capabilities.
Kakao's rationale for the split is to address the 'conglomerate discount.' The company's self-assessed sum-of-the-parts (SOTP) valuation is 34.2 trillion won, yet its market capitalization stands at only 16.8 trillion won. The argument is that the mixing of various businesses under one entity has prevented individual segments from being valued appropriately by the market.
Industry focus is particularly on Kim Do-young, as most of Kakao's future ventures will fall under Kakao X. A key initiative is the development of a won stablecoin. The plan involves partnering with global issuer Circle to establish a won stablecoin ecosystem through KakaoPay and KakaoBank. This will be integrated into a comprehensive digital wallet called 'Super Wallet,' which aims to combine payment, remittance, and asset management into a single financial platform.
If the stablecoin project gains traction, Kakao X could evolve from a mere investment firm into a new growth engine for the group. Given the heavy responsibilities of discovering new business opportunities and restructuring the investment portfolio, Kim's performance will be a critical factor in the overall reassessment of Kakao's corporate value.
In contrast, Jeong Sin-a's AI division faces different challenges. Regaining lost competitiveness is seen as crucial. Unlike Naver, which is investing up to $10 billion in AI infrastructure in partnership with Nvidia and Brookfield, Kakao believes that the financial burden of infrastructure projects like AI data centers does not justify the expected returns. Instead, it is focusing on B2C services such as agentic AI based on KakaoTalk.
KakaoTalk's performance has been strong, reporting a record quarterly revenue of 2.98 trillion won and an operating profit of 277 billion won in the second quarter. The conversational ordering and payment service developed in collaboration with Coupang Eats is also gaining traction. However, there are concerns within the company and the industry that a complex decision-making structure has hindered agility in the rapidly changing AI market.
For Jeong, the challenge lies in streamlining the organization to enable quicker responses. The goal of enhancing the conversational AI service 'Kanana' and achieving 20 million daily active users and 6 trillion won in annual revenue by 2030 has become increasingly important.
Market reactions have been lukewarm. On the day of the split announcement, Kakao's stock fell by over 13% during trading before closing down by 7%. While the human division is viewed as more shareholder-friendly compared to a physical split, the market did not perceive it as a positive development.
Investors still remember the past instances of value erosion during the spin-offs and listings of subsidiaries like Kakao Mobility and KakaoPay, which has contributed to skepticism.
Relations with labor unions also remain strained. The Kakao union, Crew Union, responded to the split announcement by calling for joint negotiations. Union leader Seo Seung-wook stated, "The company may split, but it cannot divide its past management failures and responsibilities to its employees." The union demands responsible management, job security, and a process for prior explanation and consultation whenever organizational changes occur.
The union plans to hold a joint negotiation declaration ceremony at Pangyo Station on August 26. The KakaoBank union is set to begin a five-day strike starting August 31. The union claims that the company has failed to respond adequately to official inquiries, stating, "Trust between labor and management has been broken."
The split proposal will be finalized at an extraordinary shareholders' meeting in December. Therefore, the ability of the two CEOs to present sufficient prospects for future growth to persuade both the union and shareholders will be crucial for the success of this division.
* This article has been translated by AI.
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