Deals

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

The last time the initial public offering market got excited, an Asian internet company called Alibaba was coming to New York.

Investors haven't been too exuberant since then. Just $242 billion was raised in equity debuts globally in 2015, down 20 percent from the year before. This year is looking even more emaciated, made worse by the scrapped $4.5 billion IPO by Hotel Lotte, a deal that would have been the world's biggest so far in 2016.

IPO Drought
Funds raised from global initial public offerings this year are down to levels unseen since 2009, when the world was reeling from the financial crisis
Source: Bloomberg

Now it's time for another Asian internet name to hit the market. At $1 billion, Line's IPO in New York and Tokyo is unlikely to set records. But the solid business model and modest pricing should help the Japanese company win fans in an increasingly chilly environment.

New York, the go-to venue for tech IPOs, has suffered one of its slowest starts to the year since 2008, according to Bloomberg data, with few firms willing to risk failure if investors don't endorse their high valuations. Line, owned by South Korean internet company Naver, has the luxury of not having to top the heady rounds of venture capital funding undertaken by the likes of Uber and Dropbox.

To the casual observer, Line is just another messaging app. Rivals include Facebook Messenger and its stablemate WhatsApp, as well as WeChat, Snapchat, Viber, Telegram, KakaoTalk and a dozen more. 

Line stands out because of its ability to generate revenue from users. This was driven initially by stickers -- animated characters that customers buy and can include in messages. From there, the company has added payments, games, timelines, and official corporate accounts that also attract fees. It's also working with governments and NGOs to incorporate public-service notifications in a bid to make the app an essential for smartphone users.

Line's biggest weakness is lack of geographical diversity. At 218 million users, it's a solid rival to global behemoths such as Facebook and WhatsApp. But like WeChat -- which has about 700 million users, mostly in China -- Line's user base is limited to a few markets, namely Japan, Taiwan and Thailand.

That lack of global reach may look like a problem. It isn't. Outside of Facebook Messenger and WhatsApp, few chat apps actually have a global network. Skype is on the decline and BlackBerry Messenger's days are numbered. 

There is upside to the IPO's pricing. At $5.5 billion, Line is valuing itself at about $25 per user, Bloomberg News reports. That's less than half of what Facebook paid for WhatsApp, which has practically no revenue model. In fact, the valuation Line is aiming for is 40 percent below what the company sought when it first filed for an IPO in 2014, according to Bloomberg. 

Such a tepid target is great news for investors who are increasingly wary of jumping onto new listings. Those who bought into debut offerings this year lost an average 1 percent after one month, compared with a 90 percent gain for the same period (Jan. 1 to June 13) last year and a 15 percent return a year earlier. 

Debut Drop
Asia's three largest IPOs have fallen since their debut, dragging down returns for listings globally
Source: Bloomberg

Asia has been raining on the IPO parade. The region's three largest debuts this year -- China Zheshang Bank, BOC Aviation and Bank of Tianjin -- are all down from their offer price in Hong Kong. Of the biggest global sales, only Telepizza Group has fared worse than those three, falling 18 percent since its Madrid debut in April. 

By pricing itself moderately against peers, and listing in the U.S. where debuts this year have returned an average 29 percent in their first month, Line's IPO may be just the ticket.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the authors of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net