Line’s Profit Misses Estimates as Ads Push Meets Slow Growth

  • Users increased 3.5 percent to 220 million as of September
  • Line forecast full-year sales will climb on ad revenues

Line Corp. reported third-quarter profit and revenue that missed analyst estimates as the company pushes into advertising to offset slowing growth in the user base.

Operating profit was 4.9 billion yen ($47 million) in the period ended Sept. 30, according to calculations based on nine-month numbers released by Line on Wednesday. That’s less than the 5.1 billion yen average of nine analysts’ projections compiled by Bloomberg. Sales reached 35.9 billion yen in the period, falling short of the 38.2 billion yen expected by the analysts.

Chief Executive Officer Takeshi Idezawa has said the messaging-app company plans to use part of the $1.3 billion it raised in July from investors in Japan and the U.S. to acquire content and technology. Line has to balance investments in growth with defending its core markets from incursions by larger messaging rivals Facebook Inc. and Tencent Holdings Ltd. The company is pivoting toward advertising as revenues from games and digital stickers stagnate.

“Line has a strong position in Japan, Taiwan and Thailand, the question is whether they can expand in Indonesia,” said Naoshi Nema, an analyst at Cantor Fitzgerald LP in Hong Kong. “The other key question is if they can increase advertising revenues.”

Line said its monthly active users totaled 220 million as of September, a 3.5 percent increase from a year ago. That’s slightly lower than the previous quarter, when subscribers increased 4.1 percent, and the slowest growth in at least two years.

The company has shifted its focus to generating more revenue from its core markets of Japan, Taiwan, Thailand and Indonesia. Users based in the four countries, which account for almost two thirds of the total, climbed 18 percent from a year earlier.

Advertising revenue climbed 52 percent in the three months to Sept. 30 from a year earlier, with impression-based ads accounting for a quarter of the revenue, Line said. At the same time, sales of stickers and content such as games and comics declined 7.1 percent and 18 percent, respectively.

Line expects annual sales to increase in the period ending Dec. 31, helped by ad revenue. The company didn’t give a full-year earnings forecast. Its shares closed 2.5 percent higher in Tokyo on Wednesday and remain 45 percent above their IPO price.

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