Good afternoon, this is Allen Shin, CEO of Kakao Pay. Thank you everyone for joining Kakao Pay's second quarter 2024 earnings call.
[Foreign language]
I will begin with key metrics for the second quarter, including TPV, consolidated basis, revenue and expense, and PNL, and will end with key business highlights for the second quarter of 2024. First, key performance metrics for the second quarter. Q2 2024 TPV was up 20% year-over-year, reporting KRW 41.1 trillion. Revenue TPV was up 22% year-over-year to KRW 12.1 trillion, while growing the share out of total TPV to around 30%. Second quarter revenue increased 25% year-on-year, reporting KRW 185.5 billion, and net profit for the quarter was KRW 0.6 billion, with a turnaround in EBITDA at KRW 1.8 billion. Financial income came in at KRW 15.8 billion.
[Foreign language]
Next on business metrics, Kakao Pay's MAU as of end of second quarter 2024 was 24,650,000 users, with 101 transactions per user across different services. As we wrapped up certain services with low profit contribution, number of transactions decreased marginally versus last year. But if you hone in on the company's core businesses during the same period, you will see that there was 87 transactions per user for payment, financial, and money transfer, which is a rise of 11% year-over-year. We now have, at this point, 1.07 million domestic on and offline merchants, which is an increase of 17% year-over-year. Next, Aiden, our CFO, will run through the details of the second quarter TPV.
[Foreign language]
Hello, this is Aiden, in charge of finances. TPV for second quarter was KRW 41.1 trillion, up 20% year-over-year. Revenue TPV was KRW 12.1 trillion, up 22% year-on-year, accounting for 30% of total TPV. TPV for digital payment increased 23% versus last year. Starting January, we consolidated payment as a subsidiary, which is a company specializing in O2O payment, online to offline payment that is, such as payments made at private education institutes. Also, offline payment TPV has been growing as Kakao Pay interlinked with Samsung Pay and Zero Pay since April. TPV for digital finance was up 18% year-over-year. We saw evenly spread growth from the tier one and tier two financial markets in terms of credit loan growth, which drove TPV for loan services.
Stock trading volume-related TPV, which is not included in digital finance TPV, has shown a steep year-over-year uptrend. Both domestic and overseas stock trading volume increased, expanding 74% year-over-year....Other services, including money transfer, posted 19% TPV increase on the back of continuing impact from policy on free offerings of money transfer services. As such, we saw a double-digit year-over-year TPV growth across the entire service domain. Underpinned by evenly spread growth coming from all of the business domains, Q2 revenue was up 24.6% year-over-year and 5.2% quarter-over-quarter, reporting KRW 185.5 billion. Digital payment was driven by offline and cross-border revenue, posting an increase of 12.3% year-over-year, reaching KRW 121.4 billion in revenue.
Digital finance achieved above KRW 50 billion in revenue for the first time, up 59.6% year-over-year, and 10.5% Q-over-Q, reaching KRW 55.2 billion. Top line growth was seen from all businesses, including loans, investments, and insurance, with their contribution to total revenue growing to around 30%. Driven by credit loan TPV growth and rise in revenue from Kakao Pay Insurance on launch of overseas travel insurance, as well as other new products, coupled with rise in cross-border stock trade volumes, total digital finance revenue was driven upwards. On the back of higher advertisement revenue and greater use of current recommendation services, other service revenue increased 44% year-over-year and 37.4% Q-over-Q. Supported by new revenue record for six consecutive quarters based on well-balanced growth across all of the services, we've been able to sustain an uptrend.
Operating expense for Q2 increased 19.4% year-over-year to KRW 192.8 billion. This increase is less compared to the second quarter revenue increase of 24.6% year-over-year. Marketing expense was up 17.6% year-over-year on promotions related to offline payment expansion, but against the revenue-based marketing expense ratio was 9%, which shows that our positioning on cost efficiency is being kept unchanged. Commissions was up 14.6% year-over-year due to increases in revenue from our core services. Other expense was up 106% year-over-year due to higher revenue from Kakao Pay Securities and Kakao Pay Insurance. Most of such increases are from service fees from cross-border trading, interest expense from growing deposit balance, and service costs from insurance product sales.
Operating expense quarter-over-quarter basis was up 3.6%, driven by marketing expense and commissions. Consolidated operating loss for the second quarter narrowed to KRW 7.3 billion. On the back of breakthrough performances from financial services, including loans and insurance, and turnaround achieved by payment, losses from subsidiaries narrowed, with EBITDA turning positive to KRW 1.8 billion. Net profit came in at KRW 0.6 billion, continuing two consecutive quarters of profit making. We plan to improve mid- to longer-term profit structure through efficient cost structure and by sustaining our top line growth.
[Foreign language]
Q2 separate basis revenue increased 13.5% on-year, reporting KRW 1,054.2 billion. Q2's standalone operating profit was KRW 11.3 billion and net profit came in at KRW 19.3 billion. As of June end, 2024 separate basis accumulated deficits, they decreased to the range of KRW 5 billion. Next, I will invite Jason, who heads our business division, who will run through our key business performances for the second quarter.
[Foreign language]
Hello, this is Jason. Let's first take a look at the digital payment business. Since the year 2022, we started expanding offline point of payment, completing the onboarding of Samsung Pay and Zero Pay onto Kakao Pay's payment platform in May, enabling a nationwide coverage. As such, number of offline payment users surpassed 2 million in March 2022, 3 million in March 2023, and 4 million in December 2023, and we expect to have more than 5 million offline user base by the end of the year.
used immediately on mobile, 100,000 subscribers gathered right after launch. We expect it to contribute to increasing offline payment activity through the public nature and convenience as a transportation card. In fact, recently, users' payment activities offline are increasing centered on convenience stores, PC bangs, cafes, large distribution stores, general restaurants, and transportation sectors, and the trend is that offline payment users are steadily increasing.
Also, Kakao Pay is the sole easy pay provider that can issue K-Pass, which is the Ministry of Land, Infrastructure and Transport refund program for users of mass transportation. Because of the convenience in applying and immediate issuance over the mobile device, 100,000 subscribers were acquired right after its release. We expect offline payment activity, thus, will also benefit from the universality and convenience offered by the transportation card. And as a matter of fact, offline user count has been uptrending mostly around payment activities seen at convenience stores, PC, PC cafes, and cafes, hypermarkets, restaurants, and for transportation.
[Foreign language]
We will also soon introduce additional functions, which will boost new offline user acquisition. This month, we will link up to Samsung Pay, supporting the payment method inside the Talk Pay screen. Meaning any Android Kakao Pay users may also use Samsung Pay from both the Talk Pay and the Pay app. Since QR, barcode, and MST methods will all be supported on the KakaoTalk platform, we expect cross usage will take place more frequently from online to offline payments.
[Foreign language]
Next, I will talk about hyper-personalized financial services using MyData. We at Kakao Pay see MyData business as the gateway to our financial business and as key resource for the future of our data business. MyData subscribers at Kakao Pay reached above 10 million as of end of September 2023, with July end number at 16,500,000 subscribers. We expect to have more than 20 million Kakao Pay MyData subscribers by the first half of 2025.
[Foreign language]
[Foreign language]
Pay's Financial Assistant is designed to provide sophisticated connection in the context of investment advisory, intermediating of financial product and insurances on the foundation of users financial data analytics. We use Chunsik, one of, Kakao's characters, as a user's personal assistant, to help users gain insight on one asset flow, financial status, and what one should do financially to gain monetary benefit to arrive at the most rational financial decision. For instance, on the day of receiving your paycheck, the assistant will calculate your income net of credit card payment, recommending smart solution to help users manage their monthly income.
[Foreign language]
So as such, financial assistant will offer monetary benefits and convenience to MyData users, and we will carry out further upgrades to strengthen the connection with Kakao Pay's financial services to further grow the benefits that users will enjoy. Next, I will turn it over to Jeff, heading the Services Division, to run through key highlights of Kakao Pay Securities and Kakao Pay Insurance and their second quarter performance.
[Foreign language]
Hello, I'm Jeff, heading the company's services. Let me run through performance highlights of first, Kakao Pay Securities. Driven by growth in stock services, deposit assets continued to trend upwards, repeating growth every quarter. Total deposit assets, including funds, stocks, and deposits, increased 65% year-over-year, reaching KRW 2.9 trillion, and broke 3 trillion KRW level in early July.
[Foreign language]
Q2 TPV for stock trading was KRW 11.7 trillion, up 74% year-over-year. Number of stock trades were up 175% year-over-year. And as entry barriers for cross-border trading were lowered with the introduction of fractional trades and stock collection features, number of cross-border trading has become clearly more prominent versus domestic trades, and we are reorganizing our cross-border fee scheme with a view towards improving profitability. And on the back of increases, therefore, in number and volume of stock trading, Kakao Pay Securities revenue increased 51% year-over-year, narrowing the size of losses and on track towards bottom line improvement.
[Foreign language]
At Kakao Pay Securities, in order to provide relevant investment information in a more intuitive manner, we revamped the Market tab to Discovery tab. By delivering differentiated investment insights through features like market status by sector, thematic stocks by country, real-time information feed, and stock search upgrades, we are aiming to extend users' time spent and to facilitate easy conversion to trading.
[Foreign language]
Next is on key results from Kakao Pay Insurance, who is continuing on with an uptrend in revenue by diversifying into daily insurance products. This quarter, Kakao Pay Insurance reported KRW 8.9 billion of revenue, driving 30 times top line growth in just one year....Kakao Pay Insurance has so far launched financial safety insurance, overseas travel insurance, phone insurance, driver's insurance, and toddler's insurance for parents with young children. Toddler insurance is, Kakao Pay Insurance's first long-term product line, providing coverage of everyday sicknesses for a maximum of 3 years for infants and toddlers up to 7 years of age. We will sustain the growth trajectory in the second half by improving the current product, as well as through adding new products, such as the toddler insurance and other long-term insurance lines.
Next, I will invite back Allen to share with you our ESG plan before we end the presentation.
Hello, this is Allen again. With the setup of ESG committee back in 2022, Kakao Pay has engaged in activities that are close to what we do in order to live up to our social responsibilities, and have been strengthening communication with other stakeholders. Last May, we published our second ESG report, and in the report, we included environment and social data disclosures for not just Kakao Pay, but also its affiliates, Kakao Pay Securities and Kakao Pay Insurance, taking an active approach in responding to upcoming ESG information disclosure mandate. We also joined in on abatement efforts for the environment.
In July 2024, we purchased 1,000 MWh of renewable energy so that we may achieve our RE100 requirements for the Pangyo office by the second half of 2024. Since last year, we've been running a project called Together Forever Store, providing support in terms of financial education, marketing, sales, and having small vendors enter online malls and offline pop-up stores, enabling them to connect better with more consumers and showcase their competitive brands. All of these efforts earned us the status of Sustainability Yearbook member of S&P Global back in July, as domestic and global ratings agencies acknowledged our ESG performance. So far, I have provided you with an update on Q2 2024 performances.
In the first half, we were able to grow our revenue by 25% versus last year, and also narrow the size of operating loss, translating business performance into financial outcomes of net profit and EBITDA plus on a consolidated basis. Also, on a standalone basis, first half revenue increased 14% on year, while operating profit was up 25% compared to first half of last year. Kakao Pay will not stay complacent, but build on the performance that every crew at Kakao Pay has worked to achieve, and will continue our effort in the remainder of the year to be the financial platform that which provides benefit to everyone. Thank you.
Now Q&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. [Foreign language] . The following question will be presented by Hee-yeon Im from Shinhan Financial Investment. Please go ahead with your question.
[Foreign language]
Thank you. And also thank you very much for the good results this quarter. I have two questions relating to the recent TMON and WeMakePrice, incident. Because Kakao Pay is a payment provider, I assume—I, I presume that you will also be impacted by this, incident. So I have two questions I would like to ask. The first being: what is the extent of your financial damage? And second question, in order to make sure that such problems do not repeat itself in the future, what are some of the countermeasures that the company will put in place in terms of risk management?
[Foreign language]
Hello, this is Jason, in charge of businesses at Kakao Pay. Responding to your question, as you've mentioned, as a simple pay or easy pay provider in Korea, we believe what is of most important in the long run is protecting the consumers affected by this incident. To that end, notwithstanding risks of sizable expense in respect to cancellation requests made by consumers of TMON and WeMakePrice, we are going through the process of checking with TMON and WeMakePrice, and making advance payments to consumers.
[Foreign language]
To provide a bit more detail, we're at this point processing the cancellation request from consumers and confirming with TMON and WeMakePrice about the size of the exposures relevant to these transactions. We are in the process of collating the amount and checking the recoverable amounts in regards to these transactions. At this point, therefore, it's difficult to tell you the exact amount of potential damages, and we will provide further information once we have relevant information.
[Foreign language]
Following the incident, Kakao Pay has been working hard to minimize the impact of this issue on the consumer. We quickly detected the issue, continuously checked the situation and the status with TMON and WeMakePrice, and are taking measures to protect our users, such as by actively guiding them and accepting their cancellation requests. We also opened up contingency channels with other relevant financial institutions, so as to monitor the issue in real time until the problem is resolved, and to minimize the impact as much as possible.
proceed with legal actions such as claiming subrogation rights. However, after TMON and WeMakePrice filed for rehabilitation on July 31, the measures will be taken according to the court's judgment, so it is somewhat difficult to answer at this point.
Regarding your second question about potential solutions, we are planning to take legal action, such as making an indemnity claim. However, since TMON and WeMakePrice filed for court receivership and rehabilitation on July 30, we will first have to wait for the court's decision before we can offer a specific answer.
[Foreign language]
You know, internally, in terms of risk management and to strengthen our risk management capabilities, we will review and strengthen the different policies related to, for instance, buying guarantee insurance, depending on the financial position of the merchant, or withholding payments or adjusting settlement cycles and limiting or engaging in limits management. We will also communicate with the relevant authorities and identify potential legal and institutional shortcomings or loopholes so that we may eventually be able to reduce the risk. While we have to bear the risk that is triggered externally, we believe that it will also serve as an opportunity for Kakao Pay to gain more trust from our users and ultimately power and solidify the basis of our growth going forward. Next question, please.
The following question will be presented by Shin Yong Park from Goldman Sachs. Please go ahead with your question.
Hello, this is Shin Yong Park from Goldman Sachs. I would like to ask you question relating to your financial services revenue. I see that the results have been quite good, and if we look at the quarterly trend, I believe that as you increase the share of financial services revenue out of your total revenue, moving from early 20% to up to 30%, we believe that that's going to drive up profitability of the company, the bottom line, that is. So we'd like to get some explanation regarding how the sales mix is going to change going forward, and also through increasing the share of financial services revenue, can you accelerate the timing in which you turn positive in terms of your operating profits?
Hello, this is CFO Aiden. I will respond to your question.
As you've pointed out, we continue to see strong growth from our financial services in the second quarter as well. First, if you look at Q1, financial services revenue reached KRW 50 billion for the first time, and while Kakao Pay Securities and Kakao Pay Insurance revenue more than doubled year-over-year, this trend actually continued into the second quarter as well, growing twofold on a year-over-year basis and achieving 10% QOQ growth. So as a result, now the share of financial services revenue has expanded from previous 23%, and now it reaches around 30% against the total revenue as of the second quarter. Hello, this is CFO Aiden. I will respond to your question. As you've pointed out, we continue to see strong growth from our financial services in the second quarter as well.
First, if you look at Q1, financial services revenue reached KRW 50 billion for the first time, and while Kakao Pay Securities and Kakao Pay Insurance revenue more than doubled year-over-year, this trend actually continued into the second quarter as well, growing twofold on a year-over-year basis and achieving 10% QOQ growth. So as a result, now the share of financial services revenue has expanded from previous 23%, and now it reaches around 30% against the total revenue as of the second quarter. Our new services, which include securities and insurance, are driving the financial services revenue growth, and insurance is rapidly expanding its share of revenue on the back of expanded product lineup and higher sales.
In terms of the revenue mix, over the longer term, we are aiming to increase the proportion of non-payment business, including financial services, to account for more than 50%. We still expect further upside from securities, retail and insurance writing business as a non-life insurer, and we are also planning on new businesses which will power bigger top line growth. Now, as for the question on turning around our operating loss, I'm going to focus on the medium to longer term, excluding the potential financial risk and impact from the recent TMON situation on our second half results. So we can consider two different aspects in thinking about how we achieve a turnaround. First is top line growth, and second approach is structural distinction, which we have of our PNL structure.
If you look at Kakao Pay Securities and Kakao Pay Insurance, both are mobile-based digital financial players, which means less overhead expense compared to legacy financial institutions. In the case of Kakao Pay Securities, initial infrastructure investment is largely complete by now, and we are experiencing growth of brokerage services and rapid growth of sales and operating leverage, which is underpinned by increases in deposit, which are all supporting a gradual reduction of operating loss.
For Kakao Pay Insurance, as we are building a stable product pipeline, we recognize that it requires investment in technology and investment into infrastructure, but with a very solid market share of our short-term products, such as overseas travel insurance and a steady addition of long-term lines, such as toddler insurance, we expect that we can quickly accelerate the transition to a turnaround in consolidated operating profit if we can stabilize the loss ratio and set up an efficient business cost structure as a digital insurance provider. Next question, please.
The following question will be presented by Dong-woo Kim from Kyobo Securities. Please go ahead with your question.
Thank you for taking my question. I have a question on your insurance business. Although the size of your insurance business is relatively small, I see that the growth has been quite impressive. I would like to understand what your growth strategy is, and from a more mid to a longer term perspective, can you provide us with what the revenue growth guidance could be, and also on the OP, if possible? How big do you think your insurance business will grow going forward?
Hello, this is Eddie, in charge of operations at Kakao Pay, and thank you very much for your question. Now, Kakao Pay Insurance is seeking to offer a distinctive insurance product experience to as many users as possible. To this end, we've been introducing insurance that provide coverage against our everyday risk in leisure, digital and other domains of our daily life, and have secured more than 2 million policy holders up to date, supported by the viral effect and repurchases. In order to achieve this sustainable growth, Kakao Pay Insurance will aim at enhancing existing product offerings and services and launching new and marketable products, and strengthening infrastructure competitiveness with a view towards achieving 10 times growth in 3 years' time.
Now, share of insurance business out of the financial services domain could increase by more than two times, which is up to 30%, depending on the future growth of the insurance business, also which will be impacted by the growth of the securities and loan business as well. Next question, please.
The following question will be presented by Min-woo Na from DS Investment Securities. Please go ahead with your question.
[Foreign language]
Thank you for taking my question. My question relates to the upcoming revision on and the implementation of the EFTA, the Electronic Financial Transaction Act, and how it will impact the easy pay service provider, which will going forward, mandate a registration of a payment gateway license. And I understand that some of the retailers are, at this point, making relevant preparations, and they may resort to the use of an outside payment gateway agency. But this may bring some cost and expense-related issues. And so there's a concern that the merchants may start to terminate the contract with the payment provider, such as Kakao Pay.
So we'd like to understand whether you've seen any expression of intent by the merchants on terminating the contract, and also would like to understand as to what measures you have in place to counter the implementation of this act.
[Foreign language]
This is Jason, in charge of business. I will respond to your question about the Electronic Financial Transaction Act implementation. What I can tell you is that at this point, no merchant has expressed their intent to terminate the contract that we have with us. But we do recognize that this revised act is an important issue for us, so we are looking into the potential impact and coming up with detailed plans by individual partners, merchant partners, that we have, based upon their current situation, and be in full consideration of their respective situation. And we're closely communicating with the merchants and discussing ways to hedge this issue.
[Foreign language]
To provide you with a bit more color, I understand that large retailers have already registered themselves as PGs in compliance with the law, and others who aren't yet registered are considering to use external payment servicing agencies. So concrete plans are, I understand, already in place. So impact on Kakao Pay, I believe, is going to be very limited.
[Foreign language]
Now, since we do not have that much, you know, you know, because of the time constraint, we would like to take the final question.
[Foreign language] . The last question will be presented by John Yu from Citi Securities. Please go ahead with your question.
[Foreign language]
[Foreign language]
Hello, this is Yoo In-chul from Citi. Thank you for taking my question. I have two questions that I would like to ask. First is on possible restructuring of the non-core businesses. Because if you look at the recent news spikes relating to the Kakao Group and its subsidiaries, we've seen quite a bit of talk about the restructuring of your non-core businesses, and I'm wondering whether Kakao Pay also has plans to go through rationalization of their non-core businesses, and if so, what would be the area of that restructuring? And since you mentioned about cost efficiency quite a bit during your presentation, I would just like to ask for more color on this topic... Second question is the recent trend on the use of the Pay app users.
If you consider the fact that there's been an offline link up with Samsung Pay and Zero Pay starting the end of April, I would presume that this had a positive impact on your Pay app user count. So would like to understand as to what your strategies are to further power your app user base as opposed to the Talk user base, because I would think that the app user base would have to be further activated in order for you to push more of your non-payment and non-money transfer businesses, which is the financial services.
[Foreign language]
Yes. This is Allen, the CEO. I will take your first question. Now, Kakao Pay has also set select and focus as our major initiative, and we've been running diagnostics on the health of our business and services and carrying out activities, making necessary adjustments.
So for some services, we minimized their service coverage, while for the other services have been discontinued. We've made the decision to discontinue the other services, and we took the same approach of organizational efficiency and reorganization for the subsidiaries as well. So for example, if you look at KP Insurance Service, which is a sales subsidiary, they discontinued sales through the digital channel during the first half, focusing only on sales brokerage by telemarketers and have been able to cut their headcount by 70%. In defining our core business areas, we considered market attractiveness, our competitive edge, and financial and strategic contribution, based on which we operate in easy payment, financial product brokerage, and intermediating non-financial products related to payment and financial services, and engineering distinctive products for bolstering our platform competitiveness by working through our subsidiary companies.
For the wholesale business of Kakao Pay Securities, we plan to focus on areas that bring tangible growth and profit, and that which will generate synergies with our retail business. Even as we speak, we discontinued corporate sales, which we thought would be difficult to secure profitability considering the cost incurred, and we will sharpen our approach in identifying business areas that we will be focusing on in full consideration of the status and cost structure for Kakao Pay Securities. Hello, I'm Jeff. Responding to your question on about the Pay app. Now, Pay app went through major updates in the second quarter of 2024, and its usability was significantly enhanced.
We set up a new payment app, revamping the payment window, and customized the payment benefits, including giving up to 3% point benefit, and strongly coupled the CPC ad with the benefits, focusing on conversion to financial services on key services, and incorporated various features to encourage users to switch from KakaoTalk to the Pay app. As a result, Pay app user activity metrics improved. Looking at MAU as well as WAU, the Weekly Active User count, they've both reached new highs, as of July, as of July of 2024, and WAU, Weekly Active User count especially, went up 30% in July compared to January.
In the second half, we will continue to build on the redesign, expanding connections to financial services, and further upgrade the accessibility to, and benefits of, the offline payment, enhance financial discovery and conversion in the home, the benefit, and the payment task. An update will start from August, and this will help us continue to drive more activity among the Pay app user base. This brings us to the end of the second quarter earnings call by Kakao Pay. Thank you very much for joining us today. If you have any more questions, please do not hesitate to contact us at the IR team. Thank you.