Line looks to invest in AR and data mining

Line, the Asian rival to WhatsApp, plans to use its newly-acquired wealth to invest in augmented reality and data mining to challenge Facebook following big gains for shares on its Tokyo-New York market debut.

The $1.3bn share sale, powered by a dearth of technology listings this year, has turned investor attention to how Line will improve profitability to compete with bigger rivals such as WhatsApp parent Facebook and Tencent, owner of WeChat.

Its shares jumped 48 per cent to ¥4,900 on Friday’s debut in Tokyo, after pricing at the top end of the range, handing the company a market valuation of about ¥1tn ($9.9bn) in the largest tech initial public offering this year. The company carried out a dual listing, with its stock climbing 27 per cent in New York on Thursday to close its first day of trading at $41.58.

Despite its smaller user pool and geographical reach, Shin Jungho, the reclusive founder of the Japanese messaging app owned by South Korea’s biggest internet portal, Naver, said Asian players have a deeper know-how and history to compete against western peers in creating an all-in-one hub for payments, deliveries and entertainment.

“We realise that Facebook has evolved in the same direction as us, but we are confident that we are more advanced in terms of creating a one-stop smart portal model,” Mr Shin, who serves as Line’s chief global officer, told the Financial Times.

Mr Shin said Line was looking at acquiring technologies in AR, data mining and recommendation engines as it moved to strengthen its service for businesses to interact with users on its messaging app.

Its advertising business has recently grown to comprise nearly a third of annual sales totalling ¥120.7bn, adding to its main earners of mobile games and digital stickers.

With 218m monthly active users, Line is still dwarfed in size and capital by Facebook’s WhatsApp, with more than 1bn monthly users, and Tencent’s WeChat, which has 760m users.

The company has also struggled to penetrate US and European markets with two-thirds of its users in Japan, Taiwan, Thailand and Indonesia.

“Our competitors have a huge amount of money so we cannot compete in that aspect. We should have a different rule of game using localisation and culturalisation,” Hwang In-Joon, Line’s chief financial officer, said in an interview with the FT.

“Investors have concerns about execution. But we set our strategy and we have clear visibility. We are confident about improving our profitability,” he added.

Unlike Facebook, whose services are mostly standardised across the world, Line and WeChat have customised their services to fit local culture. Critics say, however, that the strategy makes it difficult to speedily export their services in the way that Facebook has done to expand its global market share.

“Some of Line’s competitors are simply too big and strong. The realistic strategy, like the company says, is to focus on increasing users in regions where they already have brand recognition,” said Ikuo Mitsui, a Tokyo-based fund manager at Aizawa Securities.

Line was set up in 2000 as an online gaming company, marking Naver’s maiden foray into the Japanese market. It became a household name after the messaging app, with its cutesy digital stickers, was launched in 2011, a few months after the March 11 Japan earthquake and tsunami that disrupted telephone services.

With a debt load of ¥104bn, Line was lossmaking for two of the past three years and recorded a loss of ¥7.97bn in 2015.

In addition to the $1.3bn raised in the IPO, including an overallotment option, Line may also tap into cash held by Naver, which retains an 80 per cent stake.

* This piece initially mis-stated Line’s interest in augmented reality as artificial intelligence