Fenero_kakao 분석보고서

1. [ SG Fenero Team B ]
These materials may not be used or relied upon for any purpose other than as specifically contemplated by a written agreement with SG Fenero Strictly Confidential
17th Youngmin, Jo
17th Jiwon, Lee
17th Seohyung, Son
18th Jungkeun, Hong
18th Dongyub, Shin
2016 Spring Semester
Research Report for
Week2. Existing Business Analysis

2. Strictly Confidential
Disclaimer
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This presentation is for information purposes only and is based on information available to the public from sources that SG Fenero believes to be
reliable, but no representation is made that it is accurate or complete, and no information herein should be relied upon as such. Opinions and
projections found in this presentation reflect our opinion as of the presentation date and are subject to change without notice. This presentation is
neither intended nor should be considered as an offer or solicitation, or as the basis for any contract, for purchase of any security, loan or other
financial instrument.
Juengkun, Hong
Jiwon, Lee Seohyung, Son
SG Fenero 18th
82-1031325908
pingoo5908@gmail.com
SG Fenero 17th
82-1075685101
cascast@naver.com
SG Fenero 17th
82-1024287922
vimk1173@naver.com
Analysts of Team Connectors
Youngmin, Cho
SG Fenero 17th
82-1030820047
dudhal88@gmail.com
Dongyub, Shin
SG Fenero 18th
82-1099734219
daumdelshin@naver.com

3. Strictly Confidential
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Executive Summary
Platform business Analysis
AD business Analysis
Game business Analysis
Ⅴ. Conclusion
3

4. Strictly Confidential
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Executive Summary
4
Platform
Business
AD
Game
Coverage
Value chain Overview
CompanyIndustry
Peer Attraction Risk
Projection
• Tencent
• Line
• Facebook
• Naver
• Tencent
• Domestic
Market
• Global
Market
• Insufficient
MAU
• Kakao
Rewards &
Native AD
• Synergy
with Daum
• Limited at
attracting
users
• Promising
at O2O
• Weakly
Growing
• Taking on
publisher
• Low at
commission
• Question
mark on
return of
developers
• Weakly
Growing
• SNS
Platform
• Supply
side
• Going to
O2O
service
• Profit by
CPC (Cost
Per Click)
• Mobile AD
market is
remarkable
• Big change
as taking
on publisher
• Market is
stagnant,
but has
potential

5. Strictly Confidential
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Executive Summary
Platform business Analysis
AD business Analysis
Game business Analysis
Ⅴ. Conclusion
5

6. Strictly Confidential
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Platform business overview
6
Mobile Platform Value chain
Platform Sponsor
Platform Provider
Platform User
Supply
side
Demand
side
Platform Basis Service Platform
Social
platform
Mediated Network
Component
Rule
Ecosystem
Architecture
S/W ServiceH/W
SD PolicyPT
• Offers or develops the
minimum basis
component like
operating system(OS)
• Makes relationship with
provider and raises
market size by applying
rule process
Marketing Platform
Contents Platform
SNS Platform Distribution
Marketing Platform
Contents Platform
Online To Offline(O2O)
O2O
platform
Offline
location
Purchase Order
Commission
Service
consumer
Kakao platform user
Advertisement Game
• Plus Friends
• Banner
• Kakao Rewards
• Native AD
• Anipang
• ‘Become the star’
• Friendspop
• Mago

7. Strictly Confidential
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Platform business of Kakao
0
200
400
600
1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15
Kakao Talk Line
Unit: Mn User
Source: Kakao, SG Fenero Research
0 20 40 60 80 100
ETC
Whatsapp
Nateon
Facebook
Line
Kakao Talk
ETC Whatsapp Nateon Facebook Line Kakao Talk
Unit: %
Source: Kakao, SG Fenero Research
Kakao Talk vs Line
Global Messenger market MAU Domestic messenger market share in 2015
• A main risk factor that affects Kakao’s prospect is Kakao’s
relatively small portion in global market
• If Kakao hopes to seek for an opportunity to find new growth
power, Kakao should enter the global platform market
aggressively, but their position in global market is not promising
• Total users of Kakao Talk in global messenger market is about
40 million, but most of them are domestic users (average abroad
MAU in 2015 : 9~10 million)
• But now, for its power in domestic messenger market, Kakao’s
market share is overwhelming other competitors
Global MAU (Unit: Mn)
Whatsapp : 600
Facebook : 500
Wechat : 468
Line : 160
Viber : 300
Kakao Talk : 40
93%
7
(MAU:
Monthly
Active Users)

8. Strictly Confidential
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Platform business of overseas peer
Contents platform Marketing platform O2O platform[Messenger}
Kakao
Talk
We
chat
• Kakao game
• Kakao music
- Based on sns
• Kakao topic
- Mobile news
1995. 02
1998. 11
Developed
mobile-
centered
platform• Wechat game
- Best online-game
publisher
• Wechat news
- Sending news
through wechat
• Yellow ID
- Kakao Talk
enterprise SNS service
• Story channel
- Kakao story for
enterprise
• Company ID
for client management
• Provide API for
service accounts
- Integrated commerce
functions
• Kakao pay
• Bankwallet
Kakao
• Kakao pick
• Kakao Taxi
• Tenpay
(payment)
• B2C shopping
• Reservation
through wechat
• Didi Taxi
Portal
synergy
Funding
From
Tencent
• Business model of Kakao is similar to Tencent, which was
founded in China started from instant messenger named QQ and
became the first one in global game market in 2014
• Tencent grew immediately through converting simple messenger
into a portal site, and this resembles Kakao’s business direction
• According to Tencent IR, their sales’ major part is based on
platform(Sales from platform service in 2013: About 80%)
• Their business model like Didi Taxi, Tenpay could be the role
model of Kakao’s business margin structure
8
24% 31%
57%
72%
6%
0%
11%
22%
3%
6%
0
20
40
60
80
100
120
2014 2015
Others
Online Advertising
e-Commerce
Online Game
Social Network
Unit: Bn CHN
Sales structure of Tencent
Source: Tencent, SG Fenero Research

9. Strictly Confidential
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Executive Summary
Platform business Analysis
AD business Analysis
Game business Analysis
Ⅴ. Conclusion
9

10. Strictly Confidential
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Advertisers &
Brands
AD Request
to Kakao
Display on
platform
Mobile platform
Users
Cost per Click
(CPC)
 Contents
Screening by
Kakao
 Consultation
for the right
type of
advertisement
 Kakao Talk
Plus friend
 Display AD
 Kakao
Reward
 Native AD
$
AD model type
1 Plus Friend 2 Display AD
3
Kakao Reward 4 Native AD
Direct relationship with consumers Display advertisements to users
Incentives for users, AD for companies Matches form and contents with platform
10

11. Strictly Confidential
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-1000
1000
3000
5000
7000
9000
11000
13000
2011 2012 2013 2014 2015
Others
Traditional (Newspaper, Magazine, TV, Radio)
Online (Web, Mobile)
Unit: Bn KRW
Total Korean AD market
0
500
1000
1500
2000
2500
3000
3500
2011 2012 2013 2014 2015
Web AD Mobile AD
Unit: 100 Mn KRW
Source: Onlinead, SG Fenero ResearchSource: Kobaco, KT, SG Fenero Research
Web and Mobile AD market in Korea
11
0
50
100
150
200
0
500
1000
1500
2000
2013 2014 2015 2016F 2017F
SNS AD (L) Search AD (L)
Display AD (L) Etc. (L)
Growth (R)
Unit: Bn KRW Unit: %
Source: Korea Onlinead Association, SG Fenero Research
Mobile AD market segmentation
25%
26% 28%
34%
34% 36% 36% 38%
0
5
10
15
20
0
50
100
150
200
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15
Web (L) Mobile (L) Growth (R)Unit: Mn KRW Unit: %
Source: Kakao, SG Fenero Research
Mobile AD business of KakaoKakao’s
Case

12. Strictly Confidential
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Facebook AD model Naver AD model
• Providing specific area for AD only
• All users view ad via their timeline and newsfeed
• Mainly provides search AD and display ad
• Automatically connects keyword or user’s
information to advertisement UI (User Interface)
Banner display Banner display in newsfeed
App installs Significant part of Facebook’s AD sales
Sponsored videos Charged per views
Offer claims Incentives to visit offline stores
Banner display Charged CPC (Cost per click)
Click choice Provides links at the top of search result
Video AD Video played in Naver TV cast and sports
Band AD Full screen display right before exit
• Display AD in Kakao Talk & Kakao Story
• Offer incentives through Kakao Rewards
• Video AD in Kakao TV
12

13. Strictly Confidential
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0
100
200
300
400
500
600
11 12 13 14 15
Search AD Display ADUnit: 100 Mn KRW
• Due to the global trend that preferring search AD, many
advertisers choose search AD to target the specific customers
• Search AD has attractiveness that shows highly relevant search
results which are based on the customer’s own queries
• Projected returns are evaluated considering the recent
preference for Kakao and web Ad industry
• In 2016, More advertiser is planning to expand their online
advertising expenditure
• Kakao also expects to specialize in search AD which offers
customer-oriented ADs
Global Trend in search AD and display AD Net sales in Kakao AD
69 71 74 77 79
0
20
40
60
80
100
11 12 13 14 15
Search AD Display ADUnit: %
Source: Kakao, SG Fenero ResearchSource: Nielsen Research Click, SG Fenero Research
13

14. Strictly Confidential
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Plus Friend Banner AD
Strength Strength
Users
voluntarily
view ADs
Better
connection
with users
4 in 5 people
are Kakao
Talk users
Effective
display with
user analysis
Risk factor Risk factor
• Users who can view advertisement are restricted
• There is a limit to the number of friends a company can
attract
• Limit in the quality of information contained in the banner
• Less effective in mobile platform
Plus Friend subscriber
Source: Kakao, SG Fenero Research Source: DMC Media, SG Fenero Research
Mobile display AD market in Korea
0
1500
3000
4500
6000
2012 2013 2014 2015
Unit: 100 Mn KRW
0
500
1000
1500
2012 2013 2014 2015
Unit: Th User
14

15. Strictly Confidential
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0
20
40
60
80
100
120
2012 2013 2014 2015
Unit: Mn User
Kakao Rewards Native AD
Strength Strength
Significantly
less
development
cost
Provide
strong
incentive for
users
Source: Kakao, SG Fenero Research
Risk factor Risk factor
• Users who can view advertisement are restricted
• There is a limit to the number of friends a company can
attract
Emoticon purchase in Kakao Talk Native AD market in USA
Source: DMC Media, SG Fenero Research
Less
reluctance
towards AD
Effective
advertising
with user
targeting
• Users may not recognize Native AD as advertisement
due to natural appearance along other contents
-20
0
20
40
60
0
2
4
6
8
2013 2014 2015
Social native (L) Native display (L) Growth rate (R)
Unit: Bn USD Unit: %
15

16. Strictly Confidential
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• Webtoon market is rapidly increasing- the total market size in
Korea 30 billion won in Korea and CAGR between 5 years is
42.7%
• Since webtoon has become more popular in these days,
platform service companies like Kakao have a lot of potentials to
enlarge their AD sales in webtoon market
• Kakao is also expected to gain 13 million won every week for
each banner sales in webtoon
• Current search share shows that Naver is the top leader in the
search market
• Due to this unbreakable market share, Kakao enters the mobile
and web search system by ‘# search’ which is convenient and
easy to use
• About 10 million people use ‘# search’ meaning that Kakao is
likely to make 160 million won while selling one normal
advertisement
Source: Kakao, SG Fenero ResearchSource: KT Economic Research Institute , SG Fenero Research
551
783
1100
1331
1597
0
1000
2000
3000
4000
5000
13 14 15 16E 17E
Naver Kakao Nate OthersUnit: Bn KRW
-20
-10
0
10
20
30
0
20
40
60
80
100
13 14 15 16E 17E
Naver (L) Kakao (L)
Google (L) Others (L)
Growth (R)
Unit: % Unit: %
16
Webtoon market expansion 5 years search share in Korea

17. Strictly Confidential
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Executive Summary
Platform business Analysis
AD business Analysis
Game business Analysis
Ⅴ. Conclusion
17

18. Strictly Confidential
These materials may not be used or relied upon for any purpose other than as specifically contemplated by a written agreement with SG Fenero
Mobile Game business Overview
Consumer
Developer
Publisher
Open
market
Kakao
Value chain of Kakao Game
ConsumerDeveloper
Kakao game platform
+ Open market + Publisher
30%
Profit distribution per revenue of one game
Present risk factors
24.5% 21% 24.5%
1. Out of Kakao : Commission fee
21% of commission rate to all developers. Developers were
pressured for this commission. They concluded to use expenses
for marketing instead of commission
2. Out of Kakao by big gaming consolidators
Big game firms don’t want to use Kakao Platform because it is not
fit with hardcore and midcore games, resulting in shortage of
qualified developers for Kakao
3. Pressure of publishing expenses
Small & mid-sized games, which could not afford to publish their
games, should pay for publishing expenses.
4. Suit with NHN Entertainment
NHN accused Kakao of violating API patent
API: skills to send lists of SNS friends which installed specific games or
servicing game ranking within game group
Appstore Publisher Developer
Kakao Kakao DeveloperKakao
28.5% 71.5%
18

19. Strictly Confidential
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0
20
40
60
80
100
120
140
1H14 2H14 1H15 2H15 1H16(E) 2H16(E)
Unit: Bn KRW
Kakao game business
-50%
0%
50%
100%
150%
200%
250%
0
5,000
10,000
15,000
20,000
25,000
30,000
2012 2013 2014 2015 2016(E)
Revenue (L) Growth rate (R)Unit: 100 Mn KRW
Market consensus of mobile game
Source: Korean Contents, SG Fenero Research
Revenue of Kakao Game
Source: Kakao, SG Fenero Research
19
Source: Kakao, SG Fenero Research
Category Contents
AD+ SDK • Making advertisement platform
• Displaying other game’s advertisement into
player’s game when users play games
• Excluding limits for foreign gaming users who
don’t use Kakao Talk
Publishing
Service
• Kakao becomes a direct publisher
• It could improve game companies revenue by
removing intermediaries
Game shop • Lowering commission from 25% to 7.5% on
Kakao game shop
• Developers don’t need to pay to appstore like
Google store or Apple store
Compensation
system
• Improving game inviting message by enforcing
rewarding system
• When message receivers implement games,
senders could get compensation
Investment
for game
• Through K cube Ventures, Kakao is planning to
invest 30 billion KRW to the domestic game
companies
Plans for improving Kakao Game

20. Strictly Confidential
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Restructure of Kakao Game
Peer analysis with Tencent mobile game Kakao Game’s future structure similar with Tencent
Mobile game MS Services
• Services integrated platforms
(Game publishing, app market)
• Based on messenger platform
Wechat, QQ(90%↑market share)
• Game revenue : 21.3 billion RMB in 2015
Value chain of Tencent mobile game
ConsumerDeveloper Tencent
Platform + Publisher + Open market
Expansion Gameshop which is Kakao’s own app market in android
market by decreasing commission fee
Cooperation with developers by publishing games directly. When
developers agree with AD+, Kakao doesn’t fee publishing expenses
Small & middle developers could get Kakao Game’s platform effect
by low commission
- Free for less than 30 million won
- 14% for more than 30 million won & less than 100 million won
- 21% for more than 100 million won
1. Gameshop : commission decrease
2. KaKaogame S : publisher
3. Decrease of platform commission
27.3
18.1
23.1
Tencent NetEase Others
Publishing games from online
game to mobile game
1. Publishing
Having own app store, which
occupies 14%
2. Own app market
Providing game firms platform
without publishing
3. Platform
• Restructure its game platform similar with Tencent, which is
expected to make developers go back to Kakao Game
• Expectation of 218 billion won revenue by the of growth rate
13.91% in 2016
• Kakao could recover its market share even though total mobile
market is stagnant
Source: SG Fenero Research
20

21. Strictly Confidential
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J`
￦30billion
Variety
Coexistence
Growth
Distribution
Kakao Game
Investment of Kakao in mobile game business
Fund investment of subsidiaries
Small firms could exist
with big firms via funding
Funded firms should
open store at Kakao
Game
Firms could
develop various
games with funding
Fund size
• It is expected that Kakao has potential partners, which could
contribute to increase the number of qualified developers
New games published by Kakao in 2016
• Advertising other games on users’ gaming display
• Kakao Game has planned to divide advertisement profits
with developers
• Developers who agreed with AD+ could be exempted from
publishing fee by Kakao Game S
Developer Game name Genre Contribution to Kakao
Kokomo Overload Mobile RPG 2.11 billion won
Core Creative O.N.E SNG casul 0.55 billion won
Supernova Myhome Hardcore RPG 1.98 billion won
AD+ SDK
Game Tab
• In 2016, game tab would be on Kakao Talk, which is visually
exposed effectively
Source: SG Fenero Research
21

22. Strictly Confidential
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Executive Summary
Platform business Analysis
AD business Analysis
Game business Analysis
Ⅴ. Conclusion
22

23. Strictly Confidential
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Conclusion
Platform
Business
AD
Game
Coverage
Contents
• Insufficient MAU in global market
• First leader in domestic market
• Mobile AD market is promising and
Kakao has new growing model
• But, it is uncertain to success
• Benchmark on Tencent
• Kakao provides low commission fee
to game developer attracting return
of their platform
Projection
• Promising at O2O
• Growing path like
Tecent
• Weakly Growing in
existing AD business
• Weakly Growing, but
question mark on
stable growth
Conclusion
• In Existing
business, relatively
less attractive to
invest Kakao
because of risk
factors &
competition
• Promising sectors
in Existing business
are not cleared to
evaluate
• Investment points
of Kakao should be
find in New
growing business
23

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