Kakao stepped down from its position as the largest shareholder after selling its equity in its gaming affiliate Kakao Games to Japan's Line Yahoo. By handing management control of a loss-making, noncore business to Line Yahoo, Kakao is expected to speed up its long-pursued restructuring into a KakaoTalk- and artificial intelligence (AI)-centered platform company.
Kakao Games plans to expand its overseas business based on the global network that Line Yahoo has built in Japan, Taiwan, Southeast Asia, North America and elsewhere. However, the gaming industry says Line Yahoo lacks its own game development capabilities and experience, so the business synergy with Kakao Games is likely to be limited.
◇ "constitution overhaul" Kakao sheds noncore affiliate "games"
Kakao Games said on the 25th that "LAAA Investment, an investment vehicle funded by LY Corporation (Line Yahoo), will acquire part of Kakao Games equity from Kakao and will also participate in purchasing the newly issued convertible bonds by Kakao Games." If the transaction is completed in May this year, LAAA Investment will become the largest shareholder of Kakao Games. Kakao will become the second-largest shareholder, holding about 14% equity in Kakao Games.
Kakao Games is expected to use about 300 billion won secured through a rights offering and CB issuance to restore profitability. As of the fourth quarter of last year, Kakao Games logged losses for five consecutive quarters, and revenue has fallen for three straight years since 2022, making a rebound in results urgent. In particular, last year it posted its first-ever annual operating loss (39.6 billion won) since its founding, and revenue was 465 billion won, down 26% from a year earlier.
Last year, results were sluggish as development costs increased amid a lack of new titles. Kakao Games' performance is heavily dependent on its flagship "Odin: Valhalla Rising," and as Odin's revenue declined with the service running long, new titles to support it were not released in time, increasing the financial burden.
Kakao Games said it is "reviewing the use of the 300 billion won in cash to strengthen financial stability, secure major new intellectual property (IP), and invest in global market expansion," adding, "We will lay the groundwork for Kakao Games to leap from the domestic market to a global game and content company." It also appears likely to allocate some funds to development and marketing expenses for new titles scheduled for release in the second half of this year, including "Odin Q" and "ArcheAge Chronicle."
◇ Line Yahoo seeks to bolster platform competitiveness with game content
The market views Line Yahoo's investment in Kakao Games as part of a strategy to strengthen its platform through games. Line Yahoo is Japan's largest internet platform company, operating the Line messenger used by 200 million people worldwide, the Yahoo Japan search portal, and the PayPay easy payment platform. AI Holdings, a joint holding company of SoftBank Group led by Masayoshi Son and Naver, is the largest shareholder of Line Yahoo. Line Yahoo has secured a strong foothold in Japan and Southeast Asia based on the Line platform, but its growth has recently slowed.
Line Yahoo is focusing on increasing user time spent and payment amounts on its core platforms, including Line, and is seen as aiming to achieve this by adding games as content. Line Yahoo appears to have noted that Kakao Games possesses balanced capabilities in game development and publishing (distribution) and that, through major subsidiaries including Lionheart Studio, its development framework spans mobile, PC and consoles.
However, the industry views the potential synergy as limited because, like Kakao, Line Yahoo has strong platform competitiveness but lacks a track record of major success in gaming. In 2017, Line Yahoo acquired domestic game developer Nextfloor and established its game subsidiary Line Games, but continued to post losses as new titles failed to gain traction. In 2024, it even fell into a state of capital impairment.
An official in the gaming industry said, "Line Yahoo is not really nurturing Line Games to produce hits or make money, but rather using it as a kind of content tool to strengthen the platform ecosystem—messaging, payments, advertising—so it is hard to say it has a deep understanding of the game business."
The industry is also raising the possibility of a merger between Kakao Games and Line Games. Line Yahoo has been streamlining overlapping businesses, such as shutting down the Line Pay service and integrating it into PayPay under SoftBank, so once Kakao Games' business finds its footing under the new majority shareholder structure, a merger with Line Games cannot be ruled out.
Some also worry that because the Japanese game market is centered on mobile, if linkage between Line Yahoo's platform and Kakao Games goes into full swing and the focus of new development and publishing shifts to mobile games, Kakao Games' PC and console capabilities could weaken.
Wi Jeong-hyeon, a professor at Chung-Ang University, said, "Line Yahoo appears to expect a traffic boost by adding games as a fun element to major platforms through its investment in Kakao Games, but synergy will be hard to achieve," adding, "The game industry lives on steady investment and pipeline management for new titles, and it is unclear whether Line Yahoo will support that."
Kakao, on the other hand, is expected to focus on its core KakaoTalk and AI businesses through this sale. Kakao has been pushing a constitution overhaul to streamline low-profit, noncore businesses and affiliates. As a result, the number of affiliates fell to 146 from 158 as of last year. Through this transaction, it intends to reduce its management burden by handing Kakao Games' management control to Line Yahoo while maintaining platform synergy as the second-largest shareholder.