Hello, I'm Ellen Lee from Kakao's IR team. Let's begin with the first quarter 2023 earnings conference call. Today, I'm joined by Simon Hong, the CEO, and Jay Bae, the General Representative of Corporate Investment of Kakao. 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. Also, forward-looking estimates are based on assumptions, so actual results may differ from figures included in today's presentation. I will now invite Simon to present on business highlights for Kakao, the parents, and major business results of the platform.
Hello, this is Simon Hong. It has been over 13 years since KakaoTalk connected people through communication. As the primary reason users visit KakaoTalk is for communication, the second tab, which is the chatting tab, has grown as well as the central tab, generating most of the traffic and revenue within the pro-platform. On the other hand, the other tabs within KakaoTalk have shown somewhat disappointing results compared to the status of the service that the entire nation visits daily. The various feature revamps and reorganization directions for the main tabs of KakaoTalk, which we have been discussing since last year, aimed to further segment communication, which is the essence of KakaoTalk, providing users with services tailored to their needs and context.
Through the various tab revamp efforts that will continue until the second half of this year, we expect that user experience and satisfaction with the platform will improve by providing more suitable modes of communication. Furthermore, users labeled with specific purposes within the KakaoTalk ecosystem represents an opportunity for advertisers and commerce merchants to easily target at low cost. In addition, we expect that lower customer acquisition costs will be converted into direct benefits for users, such as coupons and discounts. In this way, the segmentation of communication that has been underway since last year and this year will start with improving the user experience, maximizing the efficiency of business partners, and structurally be completed with returning added value to users, ultimately serving as the first step toward the new phase of growth driven by a flywheel effect.
While the second tab, the Chatting tab, has been focused on conversation with acquaintances by providing one-on-one or group chat functions, the first tab, the Friends List tab, is centered around lighter interaction features. As features such as friends with updated profile, the interaction button, and the emoji interaction have been added, the traffic and activity of the Friends List tab have been steadily increasing. With sequential revamps continuing into the second half, we expect the number of daily active users of the Friends List tab, which was 22 million at the end of last year, to reach 40 million by the end of this year. The third tab will be revamped as this Open Chat tab in May, strengthening its role as a communication platform based on interest.
With the Open Chatting, which had been difficult to discover, now prominently placed in the third tab, users' accessibility will be significantly improved, and there will be more opportunities to easily find and join rooms that match their interests. Moreover, we plan to introduce a new popular chat feature that allows thousands or even tens of thousands of people to communicate more lightly. The Open Chat tab will be a hub for content exclusive for KakaoTalk and a space connecting more people based on interest. The third tab aims to increase the number of daily active users by more than 2x compared to the existing View tab by the end of the year through these changes. Lastly, communication between users and business partners will be expanded through the Talk Channel. Talk Channel messages have been growing based on its excellent reach and conversion rates.
This year, we aim to spread more personalized business messages by refining the targeting of messages. Advertisers can achieve their goals more efficiently at a lower cost, and users will receive messages which feel more necessary to them, leading to an improved user experience. As such, hyper-personalized messaging ad is considered a very important task this year, as it can provide added value to users, advertisers, and Kakao alike. The essence of KakaoTalk is communication. As mentioned earlier, this year is expected to be an important year for laying the foundation for a strong flywheel that begins with the segmentation of communication. Along with this, Kakao will continue to make communication between people closer and safer, creating user-cent ric services.
Continuing on, I will briefly explain the Kakao Group's AI business strategy led by Kakao Brain and the major achievements and plans for the second half of the year for Kakao Healthcare, both of which are part of Kakao's new initiative for future growth. It has been only three months since we first mentioned Kakao's overall AI strategy, including Kakao Brain, in the last quarter's earnings call, and the AI industry seems to be undergoing rapid changes with new models and services emerging every day. Amidst this situation, Kakao's competitive edge lies in its deep understanding of AI technology through its experience in building its own foundation models and securing the largest domestic user base with a chat interface.
Leveraging these strengths, Kakao Brain is proactively building AI foundation models while Kakao is pursuing a two-track strategy of quickly launching vertical services using internal and external AI tech, aiming to seize opportunities in the rapidly changing AI industry. In the first half of the year, Kakao Brain will refine its models by securing real usage data through running a demo version of message-based AI chatbot services, and aims to release KoGPT 2.0 with expanded parameters and data tokens in the second half. The upgraded Karlo 2.0, an image generation foundation model, will be unveiled in May, further strengthening the competitiveness of multimodal AI foundation models that encompass both images and language. Moreover, in the vertical domain, the web demo service of KARA-CXR, a medical diagnosis drafts generation services based on medical images, is planned to launch in the third quarter.
Kakao Healthcare is accelerating preparation for launching new services to quickly visualize achievements in both B2B and B2C sectors. In the B2B sector, a product that standardizes and digitizes clinical data and medical records held by healthcare institutions, enabling research institutions and healthcare companies to utilize this data, will be introduced to the market this quarter. In the B2C sector, a platform that analyzes data and life logs from continuous glucose monitors for diabetic patients or those in need of blood sugar management through AI, and provides lifestyle guidance such as dietary recommendations and exercise suggestions is planned to launch in the fourth quarter. Kakao Healthcare aims to contribute to reducing social costs, including medical expenses, by lowering the increasing prevalence of diabetes.
Last week, Kakao Healthcare participated in the Korea-U.S. Digital and Bio-Health Business Forum and signed MOUs and term sheet agreements with various global leading companies. In collaboration with Google Cloud in the B2B sector, a solution will be developed using federated learning, which allows AI to learn without collecting individual institution data in one place. In the B2C sector, Kakao Healthcare plans to launch blood sugar management solutions in the global market in collaboration with Dexcom, a global leader in continuous glucose monitoring, and i-SENS, the first domestic company to develop a continuous glucose monitor. Before discussing the major achievements of each business, I would like to talk about Kakao's ESG management developments in the first quarter. Kakao is continuing its efforts to advance corporate governance. First, we established an ERM, enterprise risk management committee, to enhance the integrated risk management system across the group.
In March, we appointed an independent director as the chairman of the board to strengthen its independence. Importantly, 15% of the CEO's performance evaluation KPIs have been set in relations to ESG management implementation, creating a foundation for ESG responsibilities to be reflected in major management decisions. As part of our social contribution efforts, we established the Kakao Tech Campus in cooperation with Pusan National University and Korea University of Technology and Education in March to nurture local technical talent. We plan to expand the scope to various regions and continuously expand the program. As a result of these ongoing ESG-related efforts, Kakao was recently selected as the top 1% in the 2023 Corporate Sustainability Assessment announced by S&P Global. Kakao will continue to promote solid ESG activities and strive to create social value unique to Kakao.
I will explain the major developments of each business division. The consolidated operating revenue for the first quarter was KRW 1.7 trillion, a 2% decrease from the previous quarter, and a 5% increase from the same period last year. Going into details, TalkBiz revenue recorded KRW 516 billion, a 1% QOQ decrease and a 12% YOY increase. In the case of the advertising business within TalkBiz, the sales of the main display ad product, BizBoard, slightly decreased from the same period last year due to the persistent conservative marketing stance of advertisers as a result of the delayed economic recovery. On the other hand, the messaging ads grew by 17% compared to the same period last year, highlighting the characteristics of cost effective advertising products despite the conservative advertising execution across the industry.
As a result, the advertising revenue in the Talk Biz division increased by 1% on year and decreased by 8% on quarter. To lower the sensitivity to economic fluctuations and secure a stable revenue base, the advertising business has set the expansion of the message business as an important goal this year. In particular, to secure 300,000 Talk Channels with more than 1,000 friends by the end of the year, Kakao launched a new service called Kakao Reservation in Q1, and plans to launch a commerce dedicated Talk Channel message feature and dedicated pricing plan for Talk Store merchants in the first half. In addition, partnerships with B2B or B2C2C platforms are being considered to greatly expand the Talk Channel advertiser pool.
For the first time this quarter, the quarterly revenue of the messaging ad surfaced that of BizBoard, and it is expected to continue its solid growth and establish itself as a representative advertising product for Kakao. Moving on to commerce, Kakao Commerce's total Q1 GMV recorded KRW 2.4 trillion, a 4% increase year-over-year, while revenue increased by 7% quarter-over-quarter, 25% year-over-year, thanks to the growth of high-margin delivered gift products and strategic operation of 1P products. The Talk Gift GMV increased by 1% year-over-year, reflecting the high base effect of the temporarily surged transaction volume in March last year due to the widespread of the COVID-19, in addition to the slowdown in the overall e-commerce market.
However, the GMV of delivered gift grew by 60%, 6% on-year, and in particular, the luxury beauty GMV increased by 14% on-year, driving the overall growth of the gift GMV. As the culture of exchanging gifts through KakaoTalk spreads among people from weak tie to close and intimate relationship, luxury beauty products have been received a great response from users. In addition, the mix of self-purchases to experience exclusive products and special services such as custom engraving offered, custom engraving offered only in Talk Gift has also increased. As a result, Talk Gift has established itself as the number one luxury beauty e-commerce platform in 2022.
In the first half, Talk Gift plans to continue its growth by launching the Gift Luxe tab, an online luxury specialty store that strengthens the brand lineup and product lineup, including not only luxury beauty, but also to fashion, accessories, and living. For Talk Store, the plan is to launch a Talk Store merchant dedicated Talk Channel message feature and pricing plan in the first half of the year, building a flywheel structure that connects marketing to purchase within KakaoTalk. Subsequently, based on the Talk Stores added by users as their interested brands, a more personalized shopping experience will be provided, connecting users and brands and strengthening loyalty as Kakao's unique relationship-based commerce.
Next, Jay, the General Representative of Corporate Investment of Kakao, will brief you on key earnings and business highlights.
Hello, this is Jay. I'll first start with the platform and others business performance. Q1 platform and other revenue was up by 5% YOY and 18% QOQ, recording KRW 365.6 billion. Driven by evenly spread growth from taxi and designated driver business and inclusion of KM Park into the parking business last July, Q1 revenue was up by 38% YOY. On the heels of recession and price hikes, taxi demand was sluggish, while we saw increased number of franchise taxis, including T Blue and Venti, go up by 44,000 vehicles, which is a testament to service providers' preference for sophisticated platforms. After the adoption of T Parking Pass, enabling app-based automatic payment, number of parking lots and partnership increased more than 3 times QOQ.
By improving convenience for users and operators alike, we are endeavoring to grow the parking business as critical infrastructure service of Kakao Mobility. We also expect to grow overseas market influence following the acquisition of a global mobility intermediating platform, Splyt, a company equipped with unmatched technology and global network. Kakao Pay's Q1 TPV was up by 19% YOY to approximately KRW 32.5 trillion. On the back of offline merchant expansion and strengthening of cross-border use cases through partnership with global partners, we're sustaining the growth trend. We've also seen meaningful recovery from loan referral services, while Kakao Pay Securities MTS trading volume is up on an uptrend. As a result, revenue TPV posted 19% growth YOY, breaking the KRW 9 trillion mark for the first time this quarter. Kakao Pay's Q1 MAU broke historical record.
We will continue to strengthen seamless experience across money transfer, payment, and financial services to maintain our top of mind positioning as an everyday financial platform. First is on global story business performance. Story revenue was up by 3% QOQ and down 5% YOY to KRW 228.6 billion. Underpinned by New Year holiday events and marketing support around key titles, GMV in Japan was up by 12% YOY, continuing on with the uptrend. By way of matching up with user preference and advancing servicing capabilities, user indicators improved, hitting record high quarterly revenue. In terms of content offerings, AAA IPs such as God of Rock and Solo Leveling Spin-off became big hits.
Sherpa Studio under Piccoma released in-house developed IP titled Restart of That Girl in Q1, which became a top grossing webtoon, driving the growth of Piccoma platform powered by discovery of competitive content. In North America, we completed the setup of integrated operational structure with HQ at the center, supported by collaborative system between K-content professionals in Korea and local operational people. Since then, daily average GMV in March for Tapas was up by more than 10% year to date. In the second half, on the back of app enhancement for better convenience and content curation, we'll have clear visibility on the growth potential. In the domestic market, we are able to demonstrate stronger franchise of IPs, delivering core IPs and efficient marketing spend.
Solo Leveling Spin-off ranked number one top grossing title in the domestic webtoon market, as it continues to expand the life cycle through introducing a web novel version in April. In Q2, we plan to enhance user experience and upgrade target marketing according to user behavior to drive up operational efficiency and improve profitability. For the story business, since we now have strong fundamentals and efficient operational structure, we'll focus on discovering core IPs and maximize the IP leverage to further improve business profitability. Next is media business. As new title lineup is concentrated in the second half of this year, with lower number of titles in first half booked under the production revenue, media revenue was down 46% QOQ and 10% YOY to KRW 67.7 billion.
However, in Q1, drama Our Blooming Youth was aired, and we produced and sold original entertainment series Love Alarm, and as we gradually expand the lineup. This year, under our multi-studio system, total of 30 different dramas and movies are planned and produced, 10 of which will be released. We will solidify our positioning as a global studio with the release of Race, a drama in May, and Gyeongseong Creature and The Worst of Evil are slated for release in the second half through Netflix and Disney+. Next is on music. Q1 revenue was flat QOQ and up 13% YOY to 232 billion KRW. Melon in Q1 sustained its solid subscription base, supported by distribution revenue, leveraging many of our own artists, and have also diversified music distribution portfolio.
IVE first full-length album sold more than 1.1 million copies, ranking number 1 in Melon Chart in the shortest time frame, becoming a top-tier K-pop group in just 1 year since their debut. Kakao Entertainment is placing full force behind taking its artists to the North American market by executing partnership with Columbia Records, and will focus on building a global management system. In Q1, Kakao and Kakao Entertainment became majority shareholders of SM Entertainment with 40% stake. Q1 financial segment reflects SM Entertainment and its subsidiaries as they become part of Kakao subsidiaries. Starting Q2, their earnings will be incorporated into consolidated P&L. 3 companies have full consensus on k- business corporation going forward and are discussing specific action plan. SM and Kakao Entertainment will toget her cooperate to distribute SM artists' albums and record.
Based on the network of two companies, we have started to build out a global management system, combining SM Entertainment's strong A&R capabilities and global business experience. Kakao Entertainment and SM Entertainment will lay on the basis for cooperation and will place full momentum behind the artists' global endeavors. Q1 game revenue was up by 7% QOQ and flat YOY, coming in at KRW 247.3 billion. In Q1, we launched new titles from different game genre, namely Eversoul and ArcheAge War, that became top grossing titles, further solidifying our position in the domestic mobile game market. In Q2, full quarter earnings from ArcheAge War will be booked, and there is upcoming second anniversary event for Odin and its Japanese market release, which will help sustain steady performance.
Kakao Games will launch in-house titles from various genre to domestic and global market this year and sustain its status in the most optimal partner to global IP owners. Let me now turn to Q1 consolidated operating expense and operating profit. Q1 consolidated operating expense was flat QOQ and up by 12% YOY, reaching KRW 1,669.2 billion. To run through each expense item, driven by a wage increase following annual salary rise, the base effect from decrease in bonus in Q4, labor cost was up by 9% QOQ and up 6% YOY on headcount increase, reporting KRW 445.8 billion.
Cost of revenue was down 5% QOQ on lower content production and ad agency fees, while on year-over-year basis was up by 14% to KRW 666.8 billion on higher commission paid following the rise of Talk Gift sales from 1P products and higher payment TPV from Kakao Pay. Outsourcing and infrastructure expense was down 1% QOQ on cost control and decline in outsourcing fees, while on higher infrastructure investment for data center replication and growth of Kakao Mobility's taxi business driving a higher commission paid was up by 18% YOY, coming in at KRW 242 billion. On the heels of higher marketing spend from Kakao Games and Piccoma, marketing expense was up 6% QOQ and flat YOY, reporting KRW 114.6 billion. Marketing spend ratio against Q1 revenue was 6.6%.
Lower amortization from intangibles, that is distribution license for media content following the media revenue decline, depreciation was down by 7% quarter-over-quarter, but up 15% year-over-year to KRW 150.3 billion, driven by server investments required for AI-related GPU investment and service expansion. All in all, Q1 operating profit was KRW 71.1 billion, with OP margin at 4.1%. Kakao stand-alone basis, comprising ad and commerce business, Q1 revenue reported KRW 640.7 billion, with operating profit at KRW 129.0 billion and OP margin of 20%. Non-operating revenue and expense. Other revenue was KRW 17 billion, comprising of gains from sales of equity method stock and other miscellaneous items.
The other expense was KRW 35.4 billion, part comprising of loss of sales of equity method stock and advisory fees. Equity method gain was KRW 34.1 billion, increasing by KRW 12.9 billion QOQ on the back of higher net profit on Kakao Bank, while equity method loss was down KRW 6.5 billion to KRW 39.6 billion on lower losses from equity method entities. Financial revenue was KRW 79.2 billion, mostly made up of interest and dividend income and valuation gains from financial assets which are equity held by subsidiaries. Kakao financial expense was KRW 46.4 billion, mostly coming from valuation loss on financial assets related to stock investments by Kakao Ventures and interest expense.
In Q1, income tax refund was KRW 7.1 billion due to temporary reversal in deferred tax liability following the revision of corporate tax rates. Consolidated net profit was KRW 87.1 billion. For CAPEX, there was series of investment into data centers driving KRW 64.7 billion CAPEX investment for tangible assets and KRW 31 billion for intangibles, adding up to a total of KRW 96.4 billion. This ends the earnings presentation for Q1 2023. We will now begin the Q&A. We are mindful of the time constraint. Please ask no more than two questions per person.
Now Q&A session will begin. Please press star 1, star and 1 if you have any questions. Questions will be taken according to the order you have pressed the number star 1. For cancellation, please press star 2, that is star and 2 on your phone. The first question will be provided by Jaemin An from NH Investment & Securities. Please go ahead with your question.
Good morning. I am Jaemin An from NH Investment & Securities . Thank you very much for taking my question. My first question is regarding your operating profit. You seem to have underperformed your the market expectation. Will you be able to bring and drive improvement in operating profit going forward? Second question relates to your advertisement business. I think what will be key for Kakao will be to be able to rebound and recover your advertisement revenue, and that will have impact or a positive impact on your share price going forward. Can you provide some color as to what your Q2 outlook is, and if you are seeing any data regarding April and May trend, that would also be quite helpful. Regarding your TalkBiz, I understand that your annual guidance is about similar to what we've seen previous year.
At this point, would you be able to achieve this annual guidance?
Responding to your question on the underperformance of our Q1 results, why don't I break that into two parts? I will first talk about the Q1 revenue and then talk about operating profit.
If you look at our Q1 revenue on the back of slow seasonality and also overall economic slump, we have seen growth muted. If you look at Kakao Games, there has been decline in domestic revenue from Odin and the impact from the release of Arcade War in Q1 has not yet been fully reflected across the full quarter. There was a limited impact on the revenue. As a result, on a Q-on-Q basis, we saw 2% decline and only about a 5% increase growth on a year-over-year basis in terms of our top line revenue. Because of the uncertainties that are quite rampant in the macro backdrop, advertisers have been quite conservative in implementing their marketing spend.
Hence we've seen some sluggish downturn in the display ad revenue, including the BizBoard, which is considered Kakao's core product. There is one noteworthy point that I would like to emphasize is that we've continuously seen increase in the onboarding of small to medium-sized advertisers onto the KakaoTalk Channel, which has the characteristics of high advertisement efficiency and low economic sensitivity. As a result of that, messaging business now currently takes up a bigger portion of our top line revenue, which consists of KakaoTalk Channel and Notification Talk. Going forward, in the second half of the year, we will try to expand on driving top line growth, mostly focusing on the message business, so that we may be able to attain our growth target.
On the operating profit side, we have seen significant increase in the infrastructure investment because of the redundancy work we're doing on our data centers and also higher depreciation cost on the back of rise in CAPEX. Also, we've spent more than we had originally expected around our new initiative businesses, which include AI, cloud, and healthcare. As a result of that, we have reported a lower operating profit compared to our expectations. At this point, across all of Kakao and its affiliates, we are putting in effort to achieve cost efficiencies and are planning to wind down on some of the businesses and projects where we think we don't have competitiveness. Through these efforts, we believe that we will be able to see some improvement on our P&L.
However, we expect to continuously focus more investment behind the so-called new growth engine areas, which include AI, cloud, and healthcare. Especially in order to gain a strong positioning in the AI industry, we will continue to make investments as we've done in the past. We believe that it is important timing for us to increase strategic investment in order for us to build out an AI foundational model. As a result of that, we believe that this year, per annum operating loss from our new initiatives will actually rise higher than what we've seen previous year to around 300 billion KRW level.
However, we think that this is going to be the peak for in terms of the AI investment and come second half or early next year, we will be able to see a significant decline in that, in that loss. Now from a mid to long-term perspective, I believe, what is important for us in terms of improving our top line revenue and operating profit is to build a positive and uptrending cycle that actually brings a very good match between the service and the business that is offered through KakaoTalk platform. For the time being, we believe that its revenue contribution will not be as high, but we will be able to see after next year more contribution made to the top line, to the top line revenue.
We've already demonstrated the impact the Friends tab and Open Chatting had on our advertisement and overall commerce business. Come the second half of the year and early next year, we will see some indications to its top line contribution.
This is Simon, responding to Mr. An, your the second part of your question, you asked whether we would need to adjust our Talk Business growth target, which we've communicated previously. If you look at the trend that we're seeing in the second quarter, advertisers are gradually increasing their marketing spend, but not yet to the extent that that would warrant me to say that this is a, you know, a trend that's taking place with speed. We need to still be quite cautious in looking at and observing how this trend actually plays out. Having said that, we stand by our previous target of year-on-year 16% growth from our Talk Biz.
Next question, please. The following question will be presented by Jin Goo Kim from Kiwoom Securities. Please go ahead with your question.
Thank you for taking my question. I would like to ask two questions. First, what is your take on the financial upside in terms of your ad business and commerce business on the heels of the revamp of the Talk that you've mentioned? Second question is, can you provide a little more detail with regards to the release of the AI related services and more specific timeline in terms of when you would be actually adopting these different AI models and solutions to your platform? Compared to other global big tech companies, how would you define Kakao's competitive edge in the AI domain?
Thank you, Mr. Kim, for your question. Regarding the positive upside to our revenue from the Talk revamp and its impact on advertisement and commerce business. Now, OpenChat is going to be replacing the View tab, compared to the revenue that we've been driving from the View tab, we are seeing 2.5 times to 3 times higher revenue from the OpenChat space. Of course, this is a direct impact. In terms of the indirect effects, we will have to see longer term to see how they materialize. In terms of the Friends tab, not necessarily with regards to the higher, driving higher activity rate of the BizBoard. Now, the Friends tab in itself is not serving the purpose as an advertisement surface.
It is actually a way in which, you know, through this feature, this is an interface where the users will be able to use various different types of vertical services that we offer. That's gonna be a bigger business impact compared to just serving additional advertisement space. This, the impact that we're gonna see from the Friends tab is going to be more structural rather than being a direct impact. Right now on the Friends tab, we only have list of friends who, you know, who is having their birthdays, but we will add on other features with other anniversary events. For instance, friends who will have graduation or admission to universities or people, you know, taking new jobs, which will then increase the various other gifting occasions, and that will also have revenue upside implications.
Once again, to sum it up, the Friends tab is going to use as an effective interface for users to come in contact with various different types of vertical services that we offer. KoGPT 2.0 parameters data set Korean AI ChatGPT GPT 4 vertical service AI token service data set Korean foundation model global player AI model AI chatting interface AI. Regarding your question on Kakao Brain's KoGPT, you know, as to when we will be able to release this and when we'll be able to apply that to our, adopt that to our platform. Your second part of the question was what competitive edge do we have vis-a-vis the global players?
We are at this point working very hard in developing KoGPT, and we'll probably be able to release and showcase KoGPT 2.0 in the second half of the year and start servicing it. In terms of the number of parameters and the scale of the data set compared to global players, we'd have to admit that we may lag behind, but the ones that we are developing is a best fit and foundation model for Korean language. Just to be a little cautious in painting the picture for AI direction forward, I do not believe that there's going to be a 1 AGI, a general purpose AI that's going to conquer the entire world. I believe this is going to be a multi-polar landscape whereby there will be multiple number of AI players providing generative AI models.
Also at this point, you must have used ChatGPT, you probably know the current version of ChatGPT and GPT-4 that is being used and that is being applied to different vertical services, if you use it, you will know that the response time is slow. The reason is because the specific characteristics of the Korean language has not yet been reflected or incorporated in these models. It requires significant number of tokens and hence, you know, these models cannot be used for applications where it requires very fast response time because of that constraint on the scale of the tokens. I believe that Kakao has a specialized capabilities when it comes to Korean language-based models. Global players, as they are also focusing on generative AI, we at Kakao are also open to possible collaborations.
At one perspective, we will develop our own KoGPT, Korean language-based GPT, but at the same time we'll collaborate with global players. Also because Kakao has expertise and technological capabilities regarding the chatting interface, we believe that we will be able to gain a competitive edge in AI.
Next question, please. The following question will be presented by Koo Seong-jeong from DS Investment & Securities. Please go ahead with your question.
Thank you. My name is Koo Seong-jeong from DS Investment & Securities. Thank you for taking my question. My first question relates to your Talk Biz performance. Compared to BizBoard, you've mentioned that the growth rate of your message business for the advertisers were much higher. Would like to understand how the profitability from the company's perspective differs between BizBoard and message business. Message business growth was quite steep. Can you share with us what the size of this market is and what your market share is? My second question relates to your new initiative business. This quarter, we've seen the losses from new businesses actually rise compared to previous year. According to my recollection, I thought that the company said that last quarter, that you're going to be very efficient in making AI investment and be conservative in making AI investment.
Has that changed? Going forward, do we expect or do you also expect that the AI investment will increase?
Thank you for those 2 questions. I, Simon, will respond to the 1st one, and Jay will respond to the 2nd question. Your question related to the profitability comparison between BizBoard and messaging ad. If you look at BizBoard, the number of the number of advertisements for BizBoard is going to be smaller compared to the message ad, even if the unit price or unit cost could be higher. If you think about the fact that under the Talk channel, basically there are more number of advertisements, so I think that in terms of the profitability, there is no big of a difference between the 2 types of products.
Also in light of the fact that our objective is to increase the number of Talk channels to about 300,000, 300,000, the ones that have more than 1,000 friends that is, and we think that's going to drive in addition KRW 200 billion-KRW 300 billion in terms of additional revenue. How big will this grow? It is quite hard to say at this point, but what I can tell you is that the messaging business advertisement is not going to be constrained by the current digital or online advertisement budget. The digital online advertisement market has been gradually growing and is at this point about KRW 13 trillion per annum, on a per annum basis.
This year, the area that we're really focusing on is solidifying and growing our offline franchises, as well as small and medium-sized vendors, so that they can actively make use of these business messages as part of the Talk Channel, as part of the Talk Channel platform. This is a very effective tool for these smaller vendors and these other franchise companies because it could be used not just as an advertisement message for delivering business message, but also it's a tool for sales. Hence, once again, to sum it up, I just want to emphasize that this message once again is not constrained by the digital online budget. This is Jay. Yes, as mentioned at the beginning of the year, our objective was to significantly, I mean, reduce the losses from these new initiative businesses.
Since then, we've seen a very rapid change around the AI industry, and internally we've engaged in very in-depth discussions and came to the conclusion that we need to respond very quickly and aggressively to such AI-led transformation. We've been making significant investment into AI over the past several years, but this year we have decided to be more aggressive and more bold, and hence the investment figures that you see this year is at its peak, and you will start to see that decline starting next year. There is investment required for technology investment, but at the same time, there's higher expenses for the cloud operations or usage of the cloud. Operating loss, we are thinking will be at around KRW 300 billion. Now, this is the maximum level.
On the one hand, we will focus on making investment, and in the other, we are also planning to boldly wind down on businesses that we consider to be not as competitive. Looking at Kakao Brain and Kakao Healthcare, we believe that these businesses will, in the, as we enter into the second half, there will be businesses that will be introduced that can start to be commercialized and that could really drive monetization. Starting next year, we believe we will be able to cut significant losses that is being incurred by new initiative businesses.
Next question, please. The following question will be presented by Stanley Yang from JP Morgan. Please go ahead with your question.
Thank you. I have a question on Kakao Entertainment. Last year, Kakao Entertainment posted operating loss. I would like to get more color on the profits from the story, music, and the media business and what your outlook is in terms of business operation as well as margin outlook, and would also like some information on the timing of when you will be consolidating SM Entertainment into your statements and the relevant impact.
This is Jay, responding to your Kakao Entertainment related question, and I would also like to elaborate on the synergies we are looking to gain from with SM Entertainment. If you look at first music, supported by the platform revenue and with the release and the performance that we've seen from our own artists, IVE and IU, music business has become the key cash cow of Kakao Entertainment and is continuing on with growth. Also, we are planning on various different types of business collaborations with artists of SM Entertainment. In music business, we will be able to show you a stronger growth and profit in the future. Now on the other hand, if you look at our story business, we've really focused on preemptive investment in North America and Southeast Asia, which generated a loss.
Starting second half of last year, we really focused on restructuring as well as reorganization of different organizations. Based upon that, we plan to show you gradual improvement as we go forward. If you look at our media business, to date, we have focused on investment so that we could internalize the production value chain and the content library. Because of that, there was some financial burden regarding PPA, D&A amortization and depreciation. This year, we believe that we will be able to leverage these content capabilities that we've built over the years, and we will also be able to enjoy some negotiation leverage against the OTT providers. Our objective, therefore, is to reach break-even point.
Regarding the potential synergies that we will gain from working with SM Entertainment, there are actually three major areas that we are seeking to bring results. First is really strengthening the music business' key infrastructure. Second, diversifying into secondary IPs that include other future industries like AI and virtual human. Also collaborating across all of the music ecosystem and to expand the K-pop to the global stage. From a short-term perspective, what we could do is bring together distribution capabilities of Kakao Entertainment and mega IP pool of SM Entertainment, which would create a positive loop of competition and leverage.
Supported by SM Entertainment's multi-label strategy, we will be building out a publishing structure based on which Kakao Entertainment labels would also be able to make use of the significant pool of composers and lyric writers that sit with SM Entertainment. We believe that by leveraging such internal assets that each of the companies hold, we will be able to achieve economy of scale, and that will really help us further broaden and expand K-pop artists to the global stage.
네, 시간 관계상 마지막 질문 받겠습니다. Due to the time constraint, we will take the final question. 마지막으로 질문해 주실 분은 삼성증권의 오동환 님입니다. The last question will be presented by Donghwan Oh from Samsung Securities. Please go ahead with your question.
네. 질문 기회 감사드립니다. 저희 전사적으로 성장성이 좀 둔화되고 있어서 KakaoTalk의 개편 성과가 상당히 좀 중요할 것 같은데요. 저희 Friends tab의 개편에 대한 구체적인 내용하고 시기는 언제쯤 될지 궁금합니다. 이벤트 노출되는 거 말고, 프로필 뉴스피드처럼 보여준다는 계획은 지금도 여전히 유효한지 좀 궁금하고요. 그 두 번째 관련해서는 이제 AI 관련된 관련 질문인데요. New Initiative 적자가 좀 확대될 거라고 말씀하셨는데, 그중에서 이제 Brain 관련된 예산은 어느 정도 늘 수 있는지가 궁금하고, 두 번째는 자체 모델 말고 이제 OpenAI 같은 글로벌 업체의 서비스를 저희가 application에 간접적으로 사용을 할 수 있는지, 그런 점도 가능성을 열어두고 계시는지 궁금합니다. Thank you for taking my question. The company seems to be facing a slower growth. I think it's quite important how you're going to revamp your the Talk page.
Regarding the Friends tab, are you still going to carry on with your plan to use the profile page as in the form of a newsfeed? Would you continue on with these plans to freshen up the Friends tab? Second question is regarding your new initiative business. This amount of the loss was bigger than expected. Would like to understand how much or how much of a loss or the impact is coming from Kakao Brain. Apart from developing your own proprietary AI models, are you also open to the OpenAI, for instance, leveraging or using those aspects to further collaborate and develop the AI tech?
Donghwan Oh 위원님, 질문 감사합니다. 첫 번째 Friends tab 관련한 질문에 대해선 제가 답변드리겠습니다. Friends tab이 진화하는 방향에 대해서는, 로드맵이 있는데요. 로드맵에 따라서 차근차근 이렇게 진행을 하고 있습니다. 근데 로드맵 끝에 어떤 형상일지 아마 궁금하실 것 같은데 그거는 나중에 기회가 있으면 다시 설명드리도록 하고요. 가장 중요한 포인트는 뭐냐면, 이제, 채팅이라고 하는 커뮤니케이션 자체가 굉장히 무거운 형식의 커뮤니케이션으로 느껴질 때가 있습니다. 자기가 꼭 대화를 하지 않아도 자기를 표현하고 싶을 때, 또 대화를 하지 않아도, 친구한테 격려나 응원을 하고 싶을 때, 채팅이라는 건 굉장히 무거운 형식이거든요. 그래서 이제 프로필을 활성화하면서, 그것도 동시에 한 사람이 여러 사람 일대다로, 비실시간으로 본인의, 감정이라든지 소식을 알릴 수 있고, 또 언제든지 사람들이 들어와서, 거기에, 응원할 수 있고 격려할 수 있는, 그게 이제 첫 번째 시도가, 작년 12월에 공감 스티커였고요.
공감 스티커를, 이제, 필두로 해서 지난 March에는 나의 성향을 가볍게 드러내는 MBTI stickers를 출시를 했고요. 이모티콘 꾸미기라든지 그런 표현 형식을 다양화하는 그런 작업들을 하고 있고, 거의 D-Day 설정하는 게 있는데 그전에는 D-Day가 그냥 이미지적 요소였는데 D-Day 설정한 것들이, 이제, 데이터베이스화돼서 이제 그걸 기념일로 연결시킬 수 있는 가능성이 열리게 됐습니다. 그동안에는, 이제, 프로필을 편집하지 않았던 40s-50s generation, 40s, 50s, 40s, 50s generation 편들도, 이제, 프로필 편집을 하기 시작했습니다. YOY 한 30%가 증가를 했고요. 꼭 young generation뿐만 아니라 많은 분들이 현력의 이 기능을 이용하고 소식, 친구의 소식을 가장 빨리 알 수 있고, 친구한테 자기 소식을 전할 수 있는 공간으로 바뀌는 걸 목표로 하고 있습니다. 그에 따라서, 이제, 다음 차수에 release할 땐 또 새로운 기능을 선보이게 되는데 그건 좀 나중에 설명드리기로 하고.
그 프로필을 꾸밀 때 가장 어려운 점이 거기 배경 사진 뭘로 할까? 이런 고민들이 많은데. 이번에 Kakao Brain의 AI 이미지 생성용 AI인 Karlo를 활용해서 나의 기분과 마음을 쉽고 간편하게 이미지로 표현하는 마음 배경 갤러리 그런 프로모션을 진행할 예정입니다. 저희가 Kakao라는 회사가 사실 기술을 대중화하는 데 가장 강점이 있는 회사거든요. AI라는 새로운 기술을 카카오스럽게 쉽고 대중적으로 KakaoTalk에서 녹여내는 새로운 시도를 Karlo를 통해서 하려고 합니다. 현재 친구 탭을 보시면, 아마 여기 계시는 위원님도 잘 안 쓰실 것 같은데 친구를 그냥 가나다 순으로 나열하는 전화번호부 역할만 하고 있는데, 그 효용성을 높이기 위해서 아까 말씀드린 중요한 기념일을 재발견할 수 있도록 하는 것도 검토를 하고 있고요.
거기에 비즈니스 친구라든지 나중에는 뭐, AI 친구, 그리고 또 가장 친구들도 이제 가장 공감을 많이 한 친구라든지, 뭐, 대화를 많이 한 친구, 마음에 빚을 지고 있는 친구, 뭐, 이런 식으로 세분화해서, 유저들한테 하루에 한 번씩 꼭 들러서 볼 만한 페이지다라는 느낌을 주도록 하고 있습니다.
Thank you for your question. This is Simon. I will respond to your question about the Friends tab. We do have a roadmap in place regarding the revamping or freshening up the Friends tab, and we are carrying that out in stages and in steps. You will probably be wondering as to what the end game would look like. I'm sure there will be other opportunities for us to share with that at a later point in time. What's quite important is that this whole form of chatting as part of the communication is actually a quite heavy duty form of communication because sometimes you do not want to engage in conversations, but merely express yourself, express your emotions, and receive support or encouragement from your friends and families.
If you look at the profile page, we've been trying to activate the use of the profile segment as a communication means to one-to-many people on a non-real time basis. This has become a place where people can express their emotions and also update news about their own personal status, where their friends can come anytime that they wish to provide support or show encouragement. It was based on this background that we introduced the stickers last year. In March, we also launched MBTI stickers. We also came up with emoticon decorations, and also we allowed a feature where people could set D-days, the deadline days. In the past, it was just simply a number, but now we have embedded that into a database where this could be easily linked to different anniversary days.
As a result, we are seeing people, not just young people, but people in their 40s and 50s updating their profile page more frequently. We've seen the growth about 30% year-on-year, year-over-year in the usage by the age group. We want this place to be a place where many people come to know about the news and the updates of their friends, and where people can very easily communicate with one another without feeling the burden of engaging in serious conversation. The next time around, we also have other group of other, a set of new features that will be introduced, which we'll be able to share with you later on as well.
If you look at the profile page, there's a background photo that you can select, and we are in the process of incorporating Karlo from Kakao Brain, whereby people could really express their status and the way they feel through a generative image that is going to be generated through Karlo. Kakao, since it has strength in bringing a technology and making that into a popular use or mainstreaming that, I think that's an area that we have strength. We will take AI technology and make it into something that people could easily use with a flavor of Kakao. Those are aspects that we will be working on goin g forward.
Right now, currently the Friends tab is organized in alphabetical order. Going forward, there will be other elements such as, you know, friends with anniversaries, business acquaintances and friends who you've conversed with more often compared to others, friends who have supported you more. We want this Friends tab to evolve into a place where user will visit on an everyday basis. Regarding second question on whether we are open to collaborate and cooperate with other external partners on OpenAI, yes, we are open to that possibility. If you look at mobile phones operating system, it's either Android or iOS. Depending on the type of smartphones you use, you are bound to that mobile OS. For AI, I don't necessarily think that's how things are going to play out.
I think it will all be focused on the level of services, the services that a certain AI model can provide. Some will adopt KoGPT, some for certain instances, we will be using OpenAI, and in other use cases, LaMDA, for instance, could be used. Would we be bound to one specific AI model? No, I do not think so. KoGPT will also be continuously upgraded, and I think we would be able to align with that and quite flexibly. This is Jay. On the AI investment and expenditures on the new initiative business, as I mentioned previously, the maximum operating loss that we are looking to is around KRW 300 billion, and more than 80% of that has to do with AI and AI-related cloud expenses.