Naver and Kakao head into Q3 earnings with fortunes reversed

Third-quarter earnings for Naver and Kakao, the two dominant players in South Korea's platform industry, are expected to diverge. Naver's operating profit is forecast to fall by double digits despite a sharp rise in sales, while Kakao is projected to rebound on the strength of its advertising business.

According to FnGuide, a financial data provider, Naver's consolidated third-quarter sales are expected to reach 3.51 trillion won ($2.62 billion), with operating profit forecast at 497.6 billion won. Sales would rise 12 percent from a year earlier — a quarterly record — but operating profit would fall 12.8 percent. If the forecast holds, Naver would post two consecutive quarters of operating profit decline, following the second quarter.

The cost burden from AI infrastructure investment appears to be weighing on profitability. Depreciation costs tied to GPU and other infrastructure spending for AI service expansion are cited as a key drag. Costs related to the rollout of Naver Pay's offline integrated terminal, Npay Connect, and broader commerce promotions are also expected to pressure operating profit. "As Naver's GPU purchases for building its own service infrastructure hit a record high this year, related depreciation costs will also increase," said Jeong Ho-yun, a researcher at Korea Investment Securities.

Naver plans to begin generating returns on its AI infrastructure investment starting next year. At the second-quarter earnings conference call, Naver Chief Executive Choi Su-yeon said the company expects to begin generating sales "starting with the launch of a 55 MW facility in the first half of 2027," adding that the spending represents "an investment in a structurally growing market, not a one-time business opportunity."

Kakao, by contrast, is expected to post gains in both sales and operating profit for the third quarter. Consolidated sales are forecast at 2.05 trillion won, with operating profit at 248.3 billion won — up 4.4 percent and 11.0 percent, respectively, from a year earlier. The growth rates are calculated against prior-year figures adjusted to reflect discontinued operations at Kakao Games and Kakao Healthcare.

Growth in KakaoTalk-based advertising is seen as the main driver of the improvement. Business messages — promotional messages sent by companies to users — and display advertising within KakaoTalk are identified as the key growth engines.

Kakao had already set a quarterly record in the second quarter, posting sales of 2.1 trillion won and operating profit of 277 billion won. Its Talk Biz advertising and subscription revenue reached 399.9 billion won that quarter, up 14 percent from a year earlier, driven by a 20 percent increase in business message revenue and a 28 percent rise in KakaoTalk display advertising.

Generating revenue from new businesses such as AI remains a challenge. Kakao has been expanding its AI agent service through KakaoTalk, but has yet to show meaningful profitability in that area. "Kakao's core business is solid, but other segments will likely underperform," said Choi Seung-ho, a researcher at Hyundai Motor Securities. "Based on what has been announced so far, it is difficult to expect meaningful improvement in consumer usage or revenue in the AI service segment."

Kakao is scheduled to report its third-quarter earnings Thursday, followed by Naver on Nov. 12.