If you didn’t know any better, you might think that the Line IPO was cursed.
Line, an online messaging app, music service and games venue popular in Japan and a few other Asian countries, was originally slated to go public in 2014 and again in 2015. For a handful of reasons though — including troubled financial reporting controls and a wobbly business plan — the Line IPO continued to get pushed back.
Finally in March of this year it looked as if Line had all of its ducks in a row; the public offering looked like it was going to happen … sometime this summer. In fact, Line was poised to offer a price range for its IPO on Monday of this week.
The timing couldn’t have been worse. Friday’s decision by Britain to leave the EU sent a massive, bearish shockwave across the world’s capital markets, possibly souring too many would-be buyers on wading into such a speculative idea.
Add in the fact that Line’s best growth days may well be behind it, and what you’re left with is the distinct possibility that the company missed its best chance of getting off the ground in a meaningful way.
Line isn’t a name/service too many people in the western hemisphere of the world are familiar with. That’s because the company has focused on Japan, Thailand, Indonesia and Taiwan.
Those markets alone aren’t small potatoes for the online messaging service. Line is the world’s seventh-largest (by usage) messenger app, though it’s a distant seventh behind more familiar names like WhatsApp and Facebook Inc (FB) Messenger. WhatsApp boasts roughly a billion users, while Line’s user base is closer to 200 million. It’s also not exactly an online-gaming or digital-music powerhouse.
Still, all things are relative. The ad-supported service wasn’t looking to reach a WhatsApp capitalization. Its plan is to issue 35 million shares, raising something on the order of $1 billion to grow the reach of its platform, and by extension, generate even more advertising revenue.
Funding at that level would imply a market value of several billion, though it would still be a relatively small outfit.
If any organization couldn’t afford to give investors any reason to doubt, however, it was Line.
In retrospect, perhaps the company would have been better served by not even teasing investors with an IPO last year and the year before. Floating the idea put the company in a spotlight, and under that spotlight more than a few flaws were found.
Aside from staffing issues and weak financial reporting oversight, Line simply failed to convince enough potential investors it had a bright future.
Video game industry analyst Serkan Toto explained late last year:
“I think the top reason for Line is that the company has a hard time finding new lines of business apart from games. Line Music was the latest attempt to add a new element to the Line platform, but it seems the initial results were not enough to push the company over the top and consider an IPO soon. E-commerce, mobile payments, cab hailing services, and actually most games haven’t really delivered so far.”
Though most of the concerns have been addressed, Line and the Line IPO itself have established reputations that make it easy for observers to cast doubts, perhaps coming up with too little, too late in this particular sliver of the internet.
Bayview Asset Management portfolio manager Yasuo Sakuma recently opined:
“I’m not interested… Its growth outlook is very poor. Among the four countries that it’s focusing on, only Indonesia has big room for growth in use. Even there, the business outlook is not that easy.”
He’s not alone in his opinion. Many onlookers think it’s going to be tough for Line to dethrone well-entrenched players on any of the fronts where it competes. The Line IPO was never much more than something of a long shot, but with Brexit concerns in full force, it may not be a risk worth taking at all.
Bottom Line for Line IPO
Despite the impact Brexit will have on capital markets even beyond the initial bearish knee-jerk reaction, Line says it’s forging ahead with its IPO. It still plans on listing on the New York Stock Exchange come July 14, and further reports it will price its IPO shares on Tuesday of this week.
Of all the times it needed to postpone its public offering though, this is arguably the biggest need. It’s likely the number will be perceived as too high no matter where the shares are priced, not only leading to a disappointing IPO, but cementing in place the company’s reputation as an organization that’s more trouble than opportunity.
Of course, it may not be able to shrug off the stigma of a third IPO delay either.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.