Naver, the massive Asian internet conglomerate, is set to spin out its subsidiary Line. In case you need a refresher on Line, just think about all those stickers and emoticons that you have received - Line basically invented the concept. The Japanese messaging powerhouse plans to raise up to $1B in the coming weeks with valuation expectations in the $5B+ range. It's a very large IPO, but it's also worth noting that the company originally aimed to go public two years ago with double the current valuation. During that time, Facebook's messaging apps started encroaching on Line's territory and the technology IPO market has been tough. Nonetheless, Line is one of the original mobile messaging darlings and boasts an extremely impressive business.
At its core, Line is a mobile messaging application that enables users to communicate through free instant messaging, voice and video calls, and also serves as a smart portal to other applications and services such as games, news, video services, comic books, music, and much more. Line also enables online-to-offline services such as payment services, job posting, restaurant reservations and taxi booking. Throughout the experience, Line places a strong emphasis on customization and personalization via their famous stickers, themes and emoticons. To date, Line has attracted over 2.2B downloads across their umbrella of applications.
From a business standpoint, Line generated over $1B of revenue in 2015 and will likely grow about 20% in 2016. It's also a very profitable business. On a run-rate basis, Line is doing over $300M of EBITDA (26% EBITDA margin).
The top-line growth implies that the business is maturing, and costs are heading in the right direction. The company is spending less on marketing and operating costs as a percent of sales, and profit margins are increasing.
An IPO will be great for Line as a company, but the $5B valuation that they are targeting greatly contrasts with the valuations of other rival messaging services. Facebook paid $22B for WhatsApp (more for the users than the actual business) and Snapchat was last valued at $18B. Although Line has built a huge network with a strangehold on its core countries (Japan and Southeast Asia), their growth seems to have hit a plateau. In other parts of the world, Facebook and Tencent have been succeeding - WhatsApp and Messenger each count about a billion users, as does Tencent's WeChat.
Line has a NYSE listing planned for July 14 and a Tokyo listing planned for July 15th. It will certainly be one to watch.