Line Corp.: 2016’s Biggest Tech IPO Gears Up

It has issues, but the valuation may be enough to attract investors

While there are some signs of life with tech offerings, the overall activity is still fairly meager. Only three deals have been made this year (and none have come from Silicon Valley). So what can turn things around? Well, perhaps the answer will come from Japan.

Line Corp.: 2016’s Biggest Tech IPO Gears UpAccording to a report in the Wall Street Journal, it looks like Line Corp. may soon pull off an initial public offering, which could raise anywhere from $2 billion to $3 billion. By comparison, no U.S. tech IPO has raised more than $150 million in 2016.

OK, you haven’t heard of Line? Granted, the company’s presence in the U.S. is small, but the company, a subsidiary of Naver Corporation (a Korean search engine giant), has built a strong mobile social network in Japan, Taiwan, Thailand and Indonesia. Services include calls, messaging, streaming music and games.

All in all, Line has continued to crank out decent growth, with revenues up about 21% in the latest quarter (to $303 million). The company makes money from a variety of channels, including advertising, sales of stickers, in-game purchases and payments fees.

But there is a nagging issue, which could weigh on the Line IPO — that is, the sluggish user growth.

The Line IPO: Everything to Know

As seen with companies in the U.S., such as Twitter Inc (TWTR), the consequences of stalled user growth can be quite severe on the stock price. Regarding Line, the monthly active user base increased only by 7% on a year-over-year basis to 218.4 million.

Now, despite this, there are still some factors that could gin up interest in the offering. For example, the company is profitable and more emphasis have been placed on advertising revenues, such as with the acquisition of M.T. Burn (which allows for optimized timeline advertising). Oh, and there have been investments in bot technology, allowing for local businesses — like pizza chains — to communicate with potential customers.

The biggest attraction of the Line IPO, however, is likely to be the valuation. According to a post from Bloomberg, it looks like the multiple will come to 4.5 times to 5.4 times 2015’s revenues. By comparison, Facebook Inc (FB) trades at 11.4 times and Tencent (which operates the popular WeChat platform) is at 8.7 times.

The depressed valuation should be no surprise. Let’s face it, there has been quite a bit of carnage with recent tech IPOs, as seen with companies like LendingClub Corp (LC), GoPro Inc (GPRO) and Etsy Inc (ETSY).

But this may ultimately be a good thing for the Line IPO. How? For the most part, a global tech operator may see Line as a way to get a strong footprint in Asia. If anything, it could be much cheaper to buy the company instead of committing the huge amount of resources to gain market share. Of course, FB has done this quite well with other deals, such as for WhatsApp.

As for the Line IPO, details are scarce, but underwriters include Nomura Holdings Inc., JPMorgan Chase & Co. (JPM), Morgan Stanley (MS) and Goldman Sachs Group Inc (GS).

Investors can expect the Line IPO roadshow on June 10, and an offering may hit the markets as early as next week, according to a report from Reuters.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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