LINE has under-performed the Nikkei 225 by about 30 percent year-to-date, having been level as recently as late February. Given the well communicated expenditure for LINE Pay and the new businesses under the LINE Financial umbrella, this did not come unexpected. However, with a slight bottom in mid-June, and some positive news flow through the LINE annual conference, and the launch of the Dr Mario game over the coming week, we might ask the question whether the stock has left the worst behind it?
As we have reported previously, LINE Pay ran a JPY 30bn (USD 270m) campaign to acquire new users, starting on May 20 and reaching the spending cap on June 10. JPY 1,000 worth of LINE Points were given to anyone who received a LINE Pay transfer from another user, and the recipient was required to activate their LINE Pay account by connecting it to their bank account and performing an eKYC procedure in order to receive the bonus. Given this requirement, industry analysts estimate that maybe 20% of users who received such a transfer have actually performed the authentication, resulting in a campaign spend of approximately JPY 6bn (plus additional advertising expense).
LINE stated that the number of registered users for LINE Pay has increased to 38 million (up from 30 million in December 2018) as a result of the campaign, but did not disclose the number of accounts that are fully authenticated through the bank account linkage. Given the extremely competitive nature of the Japan cashless payments wars, additional marketing expenses are to be expected, in particular when discounts get applied to the increase in consumption tax from 8 to 10 percent in October 2019 — surely the marketing machines of all players will run hot during that time.
During the LINE Conference 2019 on June 27, LINE Pocket Money, an unsecured personal loan service was confirmed for a release during the summer. This will be the first service launched by LINE Credit, a joint venture with Mizuho Bank and Orient Corporation, and based on the LINE Score, a credit scoring facility made available for opt-in on the day of the conference. LINE Securities, a joint venture with Nomura Securities, is on schedule for an autumn launch. There was no comment around LINE Bank, which is still in preparation to apply for a banking license, with a target launch in 2020.
There was an avalanche of additional announcements during the conference, quite a few appearing to be copying successful features from competitors, such as the LINE Mini App (replicating the WeChat mini programs), LINE Open Chat (Telegram? Slack?), LINE LIVE as a streaming platform (Facebook? YouTube?), and many more. LINE is clearly ambitious, but one wonders whether the company might be stretching itself too thin — as a result of the financial services pivot it had basically given up market position in Indonesia, for example, and has now a significant market presence only in Japan, Taiwan and Thailand.
Your valuation of the company will ultimately depend on the value you attribute to the new businesses. In all likelihood, they will continue to require launch investments for customer acquisition and not add to the bottom line until 2021 at the earliest. So while the downside in the stock is clearly more limited after the decline over the last four months, there also appears a ceiling until the new ventures gain traction. Tread carefully!
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