Line Rises in Initial Public Offering, Cheering Skittish Tech Industry


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Line Corporation executives and furry guests at the company’s market debut at the New York Stock Exchange.

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Brendan Mcdermid/Reuters

The Line Corporation, the owner of a Japanese instant messaging app with a colorful cast of cartoon characters, cheered the technology industry on Thursday when its shares jumped 30 percent in their American trading debut.

The strong showing offers hope for tech firms and their financial backers that Wall Street investors are warming up to closely held technology start-ups. But experts say Line is an unusual case of an established company with operating heft and a proven way to gin up sales — something that many new tech companies lack.

Line itself still faces considerable hurdles, such as slowing user growth and an untested plan to use advertising to help make it profitable.

Line’s American depositary shares, priced at $32.84 each on Monday, jumped to $42.70 in early trading in New York on Thursday. The stock is expected to begin trading in Japan on Friday.

Line’s debut coincided with another new high for the equity markets in the United States. The Standard & Poor’s 500-stock index has surged 8 percent since June 27, after Britain’s decision to leave the European Union roiled stocks worldwide, as investors anticipated additional stimulus from central banks.

Global uncertainty has hurt the market for initial public offerings. The value of I.P.O.s dropped to $50.7 billion so far this year from $107.9 billion for the same period last year, according to Dealogic, a data provider. In technology, the value dropped to $4.9 billion from $13.3 billion.

An early sign of a thaw came in the soaring debut for Twilio, the maker of communication software, which was the largest technology initial public offering of stock of the year when it listed in June.

Line’s I.P.O., the largest tech offering since First Data went public in October 2015, is likely to encourage others. “It’s good for the tech market that there is one large scale I.P.O. happening,” said Serkan Toto, a game industry consultant in Japan.

But Line also has some unique qualities. The service is well established, having begun start five years ago as a way for Japanese people to communicate after the devastating earthquake that year. It is controlled by Naver, a large South Korean company with a number of other internet businesses. It claims 218 million monthly active users, many of them in populous Southeast Asian markets, prompting industry observers to compare it to other established social media networks like Facebook and Twitter.

It has also posted strong revenue growth by selling its users what it calls stickers: small, often animated cartoon characters that include Disney and comic book figures as well as its own menagerie of in-house mascots. Stickers can sell for about $2 each. “The customers are engaging with the brand, liking it,” said Neha Dharia, a senior analyst at Ovum. “Customers are seeking out the brand.”

That encourages investors who see potential in Line to make a significant amount of money from advertising — an area where Twitter and others have struggled to turn millions of eyes into a steady revenue stream. Nearly one-third of its revenue comes from advertising. Like other Asian chat apps, such as China’s WeChat and South Korea’s KakaoTalk, it is also increasingly a platform for services that allow users to hail rides or order food.

“Asia’s mobile messengers such as Line, KakaoTalk, and WeChat are now making money,” Yongjei Jeong, an equity research analyst for Mirae Asset Securities, wrote in an email.

In terms of making money, Line is not quite there yet. It posted a $2 million loss in the first three months of the year as rising employee costs and other expenses offset revenue growth, though its loss narrowed sharply compared with a year earlier.

Line’s user growth has also slowed, raising questions about whether it can expand beyond its markets. “Line has been restricted to Japan and pockets of Southeast Asia,” Ms. Dharia said. “To replicate that experience in other markets, it takes a lot of effort.”

In other markets, a lack of hit games and an underused newsfeed feature will make it vulnerable to competitors like Facebook, said Mr. Toto, the game industry consultant in Japan. Leveraging its dominance in its existing markets “is Line’s only chance,” he said. “Outside of their core markets, it’s game over.”

Line in Japan referred questions to representatives in the United States, who did not respond to requests for comment, and to the company’s filings.

Line could give a sense of how well it is doing in advertising when it publishes its second-quarter earnings at the end of this month. Investors will also be looking for whether the company increases marketing or strikes a deal to get into new markets. “They have a lot of cash after the I.P.O.,” said Jaemin Ahn, an internet and media analyst at NH Investment & Securities.

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