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Facebook's Deal for WhatsApp Is 'Worst-Case Scenario' for Asian Rival


WhatsApp may be the biggest mobile messaging service in the world, but Asian rival Line is not so far behind. Or, at least, it hasn’t been. Facebook’s $19 billion acquisition of WhatsApp is not good news.

How bad is it? Line is owned by Seoul-listed Naver (035420:KS), and on the first day of trading after Facebook’s announcement, Naver’s stock price plunged more than 8 percent, the biggest drop since late 2012. While Naver is based in South Korea, the primary market for its mobile messaging app is Japan. Line had 58 million Japanese users by the end of 2013; a Feb. 6 report by Samsung Securities projected its Japanese user base would increase more than 41 percent this year.

Thanks to Line, mobile messages and other Internet services accounted for about a third of Naver’s revenue in the third quarter of 2013. However, Japan is a country with a shrinking and aging population. To grow, Line can’t rely too much on Japanese users, and the service had been making progress in Thailand, Indonesia, Spain, and other countries. In 2012, Japanese accounted for 42.5 percent of Line users, but last year only 18 percent of people using the mobile app were in Japan. Until Wednesday, it looked like Line’s international campaign would continue apace.

Now that Mark Zuckerberg’s social media giant will acquire WhatsApp, expansion becomes much more difficult for Line. “The worst-case scenario just unfolded for Line,” Morgan Stanley analysts Sam Min and Jiana Seo wrote in a report published yesterday, adding that “the WhatsApp & Facebook tie-up is likely to close user opportunities for Line in new countries.”

Facebook (FB) is already hugely popular not just in the U.S. but also in emerging markets such as Indonesia and Brazil. One of the things it offers WhatsApp (in addition to a nontrivial $19 billion) is a direct line to those users, making it that much harder for Naver to convince consumers to use Line instead. “This acquisition by Facebook will make WhatsApp stronger and more powerful in terms of acquiring, activating, and retaining users by leveraging Facebook’s strong [social networking services] assets,” wrote Thomas Y. Kwon, an analyst with Daiwa Capital Markets, in a report published on Thursday.

The other elephant in the room—WeChat, owned by China’s Tencent (700:HK)—may be more insulated from the WhatsApp-Facebook marriage. Although it is making inroads in Asia and South Africa and has global ambitions, it is most popular in China, where Facebook is banned.

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Einhorn is Asia regional editor in Bloomberg Businessweek’s Hong Kong bureau. Follow him on Twitter @BruceEinhorn.

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