Tencent expansion in Asia may be bolstered by Kakao connection

Stake in Korean messaging service may see mainland firm gain from takeover of web portal

PUBLISHED : Tuesday, 27 May, 2014, 1:34am
UPDATED : Tuesday, 27 May, 2014, 1:34am

Tencent Holdings, which owns 13 per cent of top South Korean mobile messaging provider Kakao, could see its regional expansion receive a big boost with Kakao's acquisition of Daum Communications, Korea's second-biggest web portal operator.

"With its strategic interest in Kakao, Tencent may find new opportunities to co-operate with the merged company in South Korea and in other markets across Asia," Guotai Junan International analyst Ricky Lai said yesterday.

Shenzhen-based Tencent, Asia's largest-listed internet company, invested 403 million yuan (HK$500 million) in Kakao in April 2012. In March this year, Tencent paid US$500 million for a minority stake in Korean mobile games developer CJ Games.

Kakao, which has expanded its KakaoTalk smartphone messaging application in Indonesia, Japan, Malaysia, the Philippines and Vietnam, previously planned to go public next year. It has now sped up that process by gaining a back-door listing with its takeover of Kosdaq-traded Daum.

Under a deal worth more than 3 trillion won (HK$22.8 billion), Daum will issue 43 million new shares to Kakao, the shareholders of which will own about 60 per cent of the merged company - called Daum Kakao - to be listed in October.

"I think this deal highlights how messaging apps are turning into new media platforms … that integrate games, location-based services, commerce or payments into one single platform," said Thomas Husson, a vice-president at Forrester Research.

"KakaoTalk generated more than US$200 million in revenue last year, mostly via games and is now adding functionalities to help marketers connect with consumers."

A Reuters report yesterday said Kakao's merger with Daum was a way to compete against fast-expanding overseas rivals. "We were concerned that we would fall behind in the global race," Kakao co-chief executive Lee Sir-goo said.

KakaoTalk counted 145 million users worldwide compared with 450 million on Line, the more popular mobile messaging app run by Daum's larger rival Naver. Tencent, the mainland's leading online games provider and web portal operator, also operates its own mobile messaging app, WeChat, which is available in 15 markets globally.