Line Falls After Outlays for New Businesses Led to Surprise LossBy
Japan’s biggest messenger created a financial holdings company
Line applied for cryptocurrency exchange license in Japan
Line Corp., Japan’s biggest messaging service, fell the most in nine months in Tokyo after reporting a surprise loss in the fourth quarter amid stepped up investment into new businesses.
The shares declined as much as 5.6 percent on Thursday, the biggest intraday drop since April. Line lost 4 billion yen ($37 million) in the quarter, compared with estimates of 2.34 billion in profit, according to Bloomberg data. The company cited upfront costs for AI speakers, game marketing spending and one-time losses related to venture investments and equity method subsidiaries.
Since Line’s listing in July 2016, Chief Executive Officer Takeshi Idezawa has been under pressure to deliver earnings growth as user base stagnated. Idezawa’s plan is to transform the messaging app into an all-in-one communications and entertainment service over the next five years. He has centered it on video and everyday services powered by artificial intelligence. The company yesterday announced plans to expand into financial services, including cryptocurrency trading, loans and insurance. The offerings may help reduce Line’s reliance on advertising revenue and offer a way to gain subscribers in countries dominated by Facebook Inc.’s Messenger and WhatsApp.
“There are risks (financial risks) and rewards (stock price bubble)” for entering the cryptocurrency space, Atul Goyal, an analyst at Jefferies Group, wrote in a report. “We wonder when investors will see profits.”
The company established Line Financial Corp. on Jan. 10 and has already applied for a license to open a cryptocurrency exchange in Japan, according to a statement. Line is also considering expanding its cryptocurrency operations to Hong Kong and Luxembourg next, according to people familiar with the matter.
The number of monthly active users in the core four countries remained mostly unchanged at 167.5 million users, with Japan accounting for about 40 percent. The company reported sales grew 19 percent to a record 167 billion yen last fiscal year, as ad revenue rose 40 percent in the period. Sales of digital stickers climbed 3 percent, while those of games declined 10 percent.
Line, which has been offering wireless service as a mobile virtual network operator since Sept. 2016, also announced a partnership with Masayoshi Son’s SoftBank Group Corp. Under the agreement, SoftBank will buy 51 percent of Line’s MVNO unit by March to help expand operations.