[This Week's Stocks to Watch] Live or Die by AI... All Eyes on Kakao's 'AI Assistant'

"Kanana Space" Unveiled as an AI Assistant Within KakaoTalk
Plans to Capture Purchase Intent and Expand Advertising and Commerce Through AI
Stock Price Down by More Than Half... AI Revenue Set to Take Off Next Year

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Kakao CEO Shina Jeong introduces the AI agent service “Kanana Space” at the “if kakao26” event held on the 13th at Kakao AI Campus in Yongin, Gyeonggi Province. Kakao

As the business foundations of content and platform companies exposed to artificial intelligence (AI) come under pressure, Kakao, one of South Korea's leading messaging platforms and a content company, is moving to expand its business by putting AI front and center. At its developer conference on October 13-14, Kakao unveiled "Kanana Space," an AI assistant that works within KakaoTalk, and outlined plans to increase advertising and commerce revenue through AI.

According to financial information provider FnGuide on October 21, seven securities firms published research reports on Kakao around its developer conference. The firms were generally positive about the direction of its AI strategy, but expected it to translate into actual revenue only from 2027 onward. Six of the seven recommended "Buy," but five lowered their target prices. Reasons for the reductions included delays in connecting AI services to external platforms, a slowdown in second-half earnings, and uncertainty related to the spin-off. Kakao closed at 32,000 won on October 20, less than half its 52-week high of 67,700 won.

An "AI assistant" available anywhere in KakaoTalk... Monetizing through ads and fees

Kanana Space is not a standalone app but an AI assistant layered over KakaoTalk. Users can call it up from any screen with a two-finger gesture, without having to switch between the chat tab and chat rooms. Kakao chose this design in response to its past experience with Kanana as a standalone app, which faced a high installation barrier. In a demonstration, the assistant found an appointment mentioned in a conversation and provided the departure time, then reordered bottled water from a previous order using a coupon. Payments and message sending are carried out only after the user gives final approval. Kakao aims to launch the service officially in March 2027, following a closed test for applicants in December 2026.

Kakao plans to generate revenue from its AI assistant in three ways. It will connect users' purchase intent, revealed through their requests to AI, to advertising, and boost commerce transactions centered on its gifting service. Kakao also introduced a new model in which the AI assistant handles services outside its platform, such as airline ticket and accommodation bookings, and collects a 2-3% brokerage fee when a transaction is completed.

In trials of small-scale travel and accommodation agents, about 40% of users who received AI recommendations converted, and most were new users. Securities firms commonly cited as a strength the ability to distribute the service directly to about 50 million KakaoTalk users without requiring them to install a separate app.

Operating costs are also designed to be relatively easy to control. The service uses large and small models depending on the complexity of user requests, and handles requests that can be processed on a smartphone directly on the device. Song Jiwon, a researcher at Heungkuk Securities, said, "AI revenue is expected to gain momentum from 2027, with AI-related revenue expanding to account for a double-digit share of Talk Biz revenue by 2028."

Kakao plans to increase its investment in AI infrastructure in 2027 compared with this year, while expecting revenue growth to outpace investment growth.

Hyundai Motor Securities estimates that Kakao's AI revenue will reach 24.6 billion won this year and 508.7 billion won in 2029. This year's figure would represent about 0.3% of total revenue, while the 2029 estimate is half the company's stated target of 1 trillion won. Choi Seung-ho, a researcher at Hyundai Motor Securities, placed greater emphasis on the effect of user data collected through AI in improving advertising efficiency than on revenue generated directly by Kakao's AI services.

Go Jun-hyeok, a researcher at Shinhan Securities, said, "Since Kakao's commerce foundation is weaker than its competitors', it needs to secure users before global AI agents make a full-scale entry into South Korea and demonstrate that those users go on to make repeat purchases."

Core business earnings rose, but... a third-quarter breather and the spin-off factor

Kakao's revenue this year is estimated at 8.1964 trillion won. Talk Biz, which combines KakaoTalk advertising and commerce, accounts for the largest share at 31%, followed by music at 28%, other platform businesses such as Kakao Pay and mobility at 24%, and stories, including webtoons and web novels, at 12%. Operating profit is expected to rise from 495.3 billion won in 2024 to 1.0033 trillion won this year.

The seven securities firms' estimates for third-quarter operating profit range from 224 billion to 252 billion won. Daishin Securities expects the figure to come in 14.8% below the market consensus of 263 billion won. The results were affected by a high base from advertising in messages about the Livelihood Recovery Support Fund in the third quarter of last year, a decline in Kakao Pay securities trading value, and reduced activity by artists under SM Entertainment.

Another factor is the planned January 2027 spin-off into Kakao AI, which will oversee KakaoTalk and the AI business, and Kakao X, which will manage investments and affiliates. The spin-off ratio is 63.5% for Kakao X and 36.5% for Kakao AI. Oh Dong-hwan, a researcher at Samsung Securities and the only one among the seven firms to give the stock a "Neutral" rating, said, "We recommend investing after confirming an improvement in earnings or the resolution of uncertainty surrounding the spin-off."

This content was produced with the assistance of AI translation services.