Line Trades at 33% above IPO Price on U.S. Debut

Messaging app raises $1.3 billion in the biggest technology IPO of 2016

Source: Line Corp.
Source: Line Corp.

Japanese messaging app company Line Corp., a subsidiary of South Korean search engine provider Naver Corp., has made a strong debut on the New York Stock Exchange (NYSE) and has started trading at $42 under the symbol LN on Thursday, July 14th, 2016. Line has raised $1.3 billion in the biggest technology initial public offering (IPO) of 2016 after pricing its shares at the high end of its IPO price range, as reported by Bloomberg. The debut price is up 33% over the IPO price of $32.84. Line’s IPO is unique since the Company is going in for a dual listing in the U.S. and Tokyo.

In Japan, Line’s shares soared over 48% on Friday, July 15th, 2016. The shares opened at 4,900 yen in Tokyo, compared with its IPO price of 3,300 yen, translating into a valuation of about 1 trillion yen ($9.5 billion). About two-thirds of the initial 35 million shares were sold in the U.S., with the remaining being sold in Tokyo. Line has retained a greenshoe option to sell an additional 5.25 million shares in the market.

Line’s shares were popular in the gray market even before its trading debut. Investors were willing to buy shares for 3,800 yen ($36) on Wednesday, July 13th, 2016, 15% higher than the IPO price of $32.84, according to Bloomberg. Line’s IPO was almost 25 times oversubscribed despite concerns over the timing of the listing, especially since it was after the market turmoil caused by Britain’s Brexit vote.

Line’s IPO is noteworthy since no other technology company has raised more than $150 million in an IPO this year. Nomura Holdings Inc. (NYSE: NMR), JPMorgan Chase & Co. (NYSE: JPM), Morgan Stanley (NYSE: MS), and Goldman Sachs Group Inc. (NYSE: GS) are its lead underwriters.

Line’s post-IPO plans

Line will use the proceeds of the IPO to expand its 218 million user base across Asia, beyond its strongest markets of Japan, Taiwan, Thailand and, eventually the U.S., according to its IPO prospectus. Line will be pitted against fellow tech stocks Facebook Inc. (NASDAQ: FB), Twitter Inc. (NYSE: TWTR), and Tencent Holdings Ltd., for which user growth has been a key metric. In the near term, the Tokyo-based company is targeting the emerging Asian markets and the Middle East. The Company is customizing its services to countries like Malaysia and Indonesia, where smartphone adoption is still in a nascent stage.

Line’s key strengths

Line’s ecosystem of services ranges from games and stamps to on-demand taxis and streaming media. Line has had a head start on other messaging apps in monetizing its user base, generating more than $800 million in revenue from stickers and games last year. However, the Company is witnessing a slowdown in growth since rivals like Facebook and Snapchat are fast catching up, offering a variety of paid-for services for smartphone platforms through their apps. Going forward, Line’s ability to increase its user base largely depends on offering chatbot services, interfaces for the internet of things, and artificial intelligence-driven offerings.

Line’s 2015 financial results

Line’s sales grew 40% to 120.7 billion yen in 2015, with games, streaming music, and comics accounting for 41% of its overall revenues. However, the Company reported a net loss of 7.6 billion yen during the year, according to its IPO filing.

Line, set up in 2011, was the pioneer of the business model of selling stickers and other digital paid-for services for smartphones. However, the Company has been facing intense competition from Facebook’s Messenger and WhatsApp and Tencent’s WeChat. Line had originally planned to go public two years ago, but postponed its plans in the hopes of getting a stronger response from investors.

The 2016 IPO Pulse

As per market data, there have only been 43 U.S. IPOs, including Line, so far in 2016. In total, these IPOs have raised only $7.4 billion, down 60% from the same period in 2015. There were no tech IPOs in the first quarter of 2016, since many companies were waiting to see the outcome of the U.K.’s Brexit vote in June 2016. Investors feel that the Line IPO was worth the wait since the Brexit fear is now subsiding and global markets are beginning to look up.

It remains to be seen how Line will up the ante to expand its user base with better and innovative services.

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