Hello, I'm Jeffrey from Kakao's IR. We will now begin Kakao's 2026 second 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. 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 eras, the attention economy focused on capturing users' attention primarily through advertising was a key theme. In the coming era of agentic AI, however, we expect a full-scale shift towards intention economy, where a new value is created in the process of understanding users' intents and completing actions.
Amid this major transition, Kakao's aims to make the agentic AI user experience a habit. Kakao plans to provide a new form of agentic AI experience that identifies users' intents within the context of their conversations, recommends various types of actions based on the identified intents, and enables agents to carry out those actions on their behalf. In particular, our goal is for this use of AI not to remain a one-time 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 models that we have consistently emphasized, enabling them to capture not only explicit intent, but also intent embedded within conversational context while further deepening their overall understanding of users.
Our recently introduced Kanana-2-1.3B model delivers superior performance compared with global open source models in areas that are essential for operating real-world AI services, including conversation, knowledge, instruction following, and tool calling, despite its significantly smaller parameter size. This lightweight model is already being used across Kakao's AI services, including Kanana in KakaoTalk, conversation summary, call summary, and the AI National Secretary. We have open sourced the model 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 on-device AI models. With this enhanced long-term memory capabilities, Kanana in KakaoTalk will move beyond understanding only fragments of conversations. Instead, it will understand users' schedule and interest scattered across multiple conversations within a single context, enabling it to identify users' intent with greater accuracy.
Furthermore, the longer users engage with Kanana in 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' intents, we believe that the key factor in making the new AI experience a habit is how far we can expand agency actions that lead all the way to real-world actions and transactions across users' everyday lives. Kakao has prioritized partnerships with top-tier players in verticals that 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 Eats.
Once Coupang Eats 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 menu 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 two companies are currently engaged in detailed discussions across multiple areas to ensure that agency AI experience within KakaoTalk 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.
We believe it is meaningful because it represents the first step toward establishing a new user habit where AI understands the user intent, connects it to real-world actions, and helps users complete the recurring everyday task through AI. Building on this, Kakao's AI's ecosystem will expand into verticals that users engage with frequently in their daily lives, including commerce, reservations, 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 Play MCP to expand the ecosystem more rapidly. Today, Play MCP already hosts more than 3,400 MCP tools, generating over 100,000 calls per day.
Just as the App 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 interface was the GUI, where users navigated six screens and manually tapped buttons. 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 the text and voice. KakaoTalk already has an LUI-based communication channel in the form of chat rooms, where users send messages and images to their friends. This makes it possible to transform the chat room into the prompt 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 would with a real colleague.
Building on the reliability that KakaoTalk has maintained over the years, we will continue to evolve the platform so that it can seamlessly support everything from authentication and permissions to memory, AI tools, payment, and connections between agents. In the second half of this year, while pursuing multiple initiatives in parallel, 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 competitiveness drove growth across the platform business, from advertising and 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 agency AI, the key competitive advantage will no longer be who builds a better model, but who can most naturally embed AI into users' everyday lives and connect it to real-world actions. In this new competitive landscape, Kakao is well-positioned to deliver the best agency AI experience, having already established strong user touchpoints and a broad service ecosystem. Considering 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 agency commerce and subscription revenue from AI services, we also expect a new category of AI advertising revenue, something that Kakao has not had before, to begin contributing in earnest. By 2028, we expect AI-related revenue within Kakao Talk Biz to expand rapidly into double-digit percentage of Talk Biz revenue, making AI both the key driver of renewed Talk Biz growth and one of our major revenue streams. Kakao transforms everyday life in the mobile era. Kakao is now pioneering the AI era as a first mover, leading the mass adoption of AI so that everyone can have their own AI agent. Throughout this transformation, AI is not only one-time 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 step by step, establish 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 second 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 2.0 99 trillion, up 9% year-over-year and 8% quarter-over-quarter. Platform revenue reached KRW 1. 23 trillion , growing 17% year-over-year and 7% quarter-over-quarter. First, revenue for Talk Biz, Kakao's core business, was KRW 643 billion, up 12% year-over-year and 2% quarter-over-quarter. Second quarter Talk Biz advertising and subscription revenue reached a quarterly record high of KRW 400 billion, growing 14% and 11% quarter-over-quarter. Starting with business message, revenue grew 20% year-over-year, supported by solid demand from financial advertisers. Advertisers that previously used 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% year-over-year. 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% year-over-year in the first quarter, indicating that growth accelerated further quarter-over-quarter. In the second half, we plan to further expand commerce-related ads and diversify our ad products to capture demand from a broader range of advertisers. Through these efforts, we expect to continue attracting new advertisers while encouraging existing advertisers to increase their budgets. By contrast, network ads revenue, which covers inventory outside KakaoTalk, declined 45% year-over-year. 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 quarter total commerce GMV was KRW 2 .7 trillion , up 9% year-over-year, but down 5% quarter-over-quarter. Talk Gift maintains solid growth by strengthening its product lineup in luxury beauty, food, and baby and kids 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% year-over-year. 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 Talk Gift GMV. Given the significant room for further growth, we expect self-purchases to remain a key driver of Talk Gift's 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% year-over-year. Commerce revenue recorded KRW 243 billion, up 10% year-over-year. Growth was driven by higher GMV at Talk Gift and Talk Store, strong 1T sales, and the recognition this quarter of a portion of GMV from the shopping fiesta held in March. Commerce revenue declined 10% quarter-over-quarter, reflecting the high base from Lunar New Year demand in the first quarter. Platform and other revenue reached KRW 587 billion, up 22% year-over-year and 12% quarter-over-quarter.
Starting with mobility, solid performance from its existing business was complemented by strong growth in last mile logistics. 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 equities. 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% year-over-year and 10% quarter-over-quarter. First, story revenue was KRW 211 billion, down 16% year-over-year and broadly flat quarter-over-quarter. Piccoma's revenue in yen declined 9% year-over-year as a slowdown in Japan's manga market continued. The second quarter includes Golden Week, Japan's major extended holiday, and the manga market's biggest seasonal peak.
During this quarter, Piccoma carried out active marketing activities to mark its 10th anniversary and introduced new short form animated video content. Piccoma maintained its number one 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. It will work to build traction for its newly launched short form animation and merchandise businesses. Piccoma will expand its business across the full IP lifecycle, from sourcing and distribution to downstream IP commercialization, while developing new growth drivers. Kakao Entertainment Story business saw slight quarter-over-quarter 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. Music revenue reached KRW 558 billion, up 8% year-over-year and 15% quarter-over-quarter. Year-over-year growth was driven by expanded concert activities by major artists, together with higher MD and licensing revenue. Quarter-over-quarter growth was driven by increased album sales and MD revenue following comebacks by anchor artists including aespa and NCT WISH. Media revenue was KRW 99 billion, up 5% year-over-year and 7% quarter-over-quarter, reflecting an increase in the number of titles under production. Regarding operating expenses, second quarter operating expenses were KRW 1.821 trillion , up 6% year-over-year and 5% quarter-over-quarter. Labor costs increased only 2% year-over-year as we maintained a conservative hiring stance. They remained broadly flat quarter-over-quarter at KRW 448 billion.
Marketing expenses reached KRW 97 billion, up 22% year-over-year and 33% quarter-over-quarter, reflecting expanded marketing activities at Piccoma and Kakao Pay. Marketing expenses accounted for 5% of consolidated revenue in the second quarter. Cost of revenue was KRW 746 billion, up 10% year-over-year and 6% quarter-over-quarter. This was due to higher production costs following expanded activities by major music artists. Despite continued growth in infrastructure demand, we are effectively managing cost increases through efficient investment and operations. Outsourcing and infrastructure costs increased only 2% year-over-year and rose 7% quarter-over-quarter to KRW 223 billion. Depreciation and amortization expenses were KRW 192 billion, down 8% year-over-year and 3% quarter-over-quarter. The decline reflected the base effects from content license amortization and one-off bad debt expenses. Second quarter consolidated operating profit was KRW 277 billion, up 36% year-over-year and 31% quarter-over-quarter.
The operating margin was 13%, improving by approximately three percentage points year-over-year. For reference, standalone operating profit for the second quarter was KRW 126 billion, up 17% year-over-year. The standalone operating margin improved by approximately 1 percentage point to 18%. Moving on to non-operating items. Second quarter non-operating income was KRW 87 billion, increasing by KRW 51 billion year-over-year, reflecting a gain on disposal from the sale of AXZ. On a QoQ basis, non-operating 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 118 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 year-over-year and KRW 70 billion QoQ 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 and A session. As time is limited, we kindly ask that you limit your questions to two per person.
Now Q and A session will begin. Please press star one, that is star and one if you have any questions. Questions will be taken according to the order you have pressed the number star one. For cancellation, please press star two, that is star and two on your phone. The first question will be provided by Eric Cha from Goldman Sachs. Please go ahead with your question.
Good morning, and thank you for taking my question. I would like to submit two 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 are planning on partnering up with external vertical service players. Compared to the schedule that you shared with us and during the previous earnings call, it seems like there's been a bit of a delay. 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? If you could lay a possible launching schedule going forward, that would also be very helpful. My second question relates to your—
ChatGPT in Kakao. 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.
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This is Shina. I will be responding to the two questions that you asked. First, in regards to Kanana in 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 recommends services within the context of the conversation, and completing the flow all the way across authentication and up to ordering and payment process. In order for this to happen, partners' 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 and R, roles and responsibility of each of the respective companies, and also match baseline for business model and operation.
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.
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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. We felt that delivery service was most appropriate because of high frequency of usage by the user 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. 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.
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In creating the most optimal experience, we want to be the first to validate the scalability and business feasibility of agentic 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. This will become strong basis for scaling agentic AI ecosystem as well as our partner base. Based on such experience and operational knowhow, we will develop A2A-based integration structure supporting role of the agents and also the call method. Repeatable features like authentication, delegation, and ordering and payment will be offered in the form of SDKs and agent builders.
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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.
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Now, let me move on to the second part of this question on the update and AI services and our plans to expand on user engagement. Looking at Kanana in KakaoTalk and ChatGPT for Kakao. Firstly, for Kanana in KakaoTalk, since its release, we've been releasing enhancements on average of every two weeks based on user feedback and incorporating data usage as we further refine user experience. Because competitiveness, we believe, will be determined by how fast we incorporate actual usage data to our services.
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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 place 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. User retention has moved close to 80% versus 70%, which was immediately after the release.
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We plan to expand on intent to action conversion, connecting all the way up to ordering and making payments, starting with our endeavor with the delivery platform, and make sure users' intents 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 fully laid the basis to drive sustainable usage of Kanana in 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.
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ChatGPT for Kakao in the second quarter had a reported 13 million cumulative subscribers. 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 six messages, and daily average time spent is close to eight minutes as of the end of the quarter, showing very clear uptrend in activity as we move beyond subscriber expansion stage. To further facilitate this trajectory, in recent updates, 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 chat room. 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.
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In the second half of the year, we will further drive agentic AI experience of Kanana in KakaoTalk, and also enhance image generation and chatbot features of ChatGPT 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.
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We'll take the next question.
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The following question will be presented by Jamie Na from NH Investment & Securities. Please go ahead with your question.
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Thank you. I am Jamie Na from NH Investment & Securities. Thank you for taking my question. You did give us a summary of your second quarter financial performance. Any aspect of that result that you wish to highlight? If you could provide us with that additional color, that would be helpful. 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 meaningful contribution to your performance? What are your thoughts on your mid to longer term monetization strategy?
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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 made a turnaround into profit, 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 re-acceleration of the growth from Talk business, ad and commerce business. 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 four years, a double-digit growth rate.
Supported by the strength from such core businesses, even after the inclusion of Kakao Brain, and even with continuing investment into AI on a standalone basis, our operating profit margin increased by one percentage point 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 standalone basis, can continue on with its AI investment and at the same time drive profitability of its core businesses.
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We now see a clearer pattern where on top of revenue growth from our core businesses, we've also seen a 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. 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 the keyword of selective focus. I believe that this outcome is a result of a very sound and healthy growth endeavors over the years. The good performance that we are seeing in the second half is actually the result of such efforts.
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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 one-time 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.
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Our assessment is that the platform business has re-entered the structural growth phase. 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 non-core businesses fully reflected in our numbers in Q3. 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, we will, without much difficulty, be able to outperform those targets.
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On Kakao standalone basis, the growth that we see from advertisement and commerce business is offsetting our AI investment burden. AI right now is at the investment phase ahead of making contributions to the top line. We at Kakao are making efficient cost controls and cost management. We believe that AI related OpEx in the second half of the year will be maintained at the current level. The growth from our existing core legacy businesses are ample enough to support us up until the time that our AI business starts making revenue contribution.
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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. On top of our advertisement and commerce solid growth from these two businesses, on top of which there will be AI contribution, eventually we will be able to see our OP margin significantly outperform the 20% level on a separate basis. As we are running out of time, we will be taking the final question.
The last question will be presented by Junhyun Kim from HSBC. Please go ahead with your question.
Thank you very much for taking my question. I remember that beginning of the year, you've guided us that you are looking to grow your Talk Biz ad business by double digits. 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.
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 Talk display ad to report a robust growth, driving the overall Talk Biz ad. Commerce advertisement will be making revenue contributions. 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. Our plan is to continue to focus on in-feed ad to drive display ad growth. Such feed-type advertisement actually naturally surfaces when the user actually explores or searches for content. Compared to the more traditional type of ad product, its attention and conversion metrics are quite good.
Supported by these levers, excluding Bizboard, if you look at DA revenue, we've seen a year-over-year growth of three times. Out of the total DA business, its revenue mix expanded to 45%. For our advertisement revenue, the pivot is shifting and diversifying further away from Bizboard-centered structure to one that is more focused on feed-type advertisement. Hence we believe this to be quite meaningful. 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 competitiveness of our advertisement product so that we can sustain the growth in feed-based advertisement.
From a more mid to longer term horizon supported by AI services, we will be identifying new advertisement business model and we also consider expanding into the search ad market as one of our key tasks going forward.
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Come 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. We will be able to provide a more broader experience that is powered by AI, that goes beyond the keyword-based search ads realm. If you look at the domestic digital advertisement markets, there are two pillars, which are display ad and search ad. Up to now, Kakao had been doing its business mostly around the display ad business. Going forward, we will enter into also the search ad market and expand that market so that we can gain a mid to long-term growth engine.
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Next, I would like to talk about our strategy for AI factory and B2B infrastructure. Now, 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 difference is not the infrastructure layer, because Kakao as a company has made formula for success based on B2C capabilities, developing services that can be diffused into every aspect of people's daily lives. In the AI era, this competitiveness will continue. 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.
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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. There is a competitive supply expansion that is taking place. We cannot guarantee high margin or profitability to continue over an extended period of time from the supply imbalance. We believe that prospective ROI may not be sufficiently high compared to the short-term financial burden.
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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 models 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. Thank you.
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Thank you. This will end the second quarter 2026 earnings conference call of Kakao. Thank you for—