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Line Would Be Lucky to Find a Suitor, Even Yahoo

Tim Culpan

(Bloomberg Opinion) -- Line Corp. would be lucky to have a suitor. Even if it bears the name Yahoo. 

The instant-messenger company has been marching toward irrelevance since its dual Tokyo and New York initial public offerings three years ago, with management failing to navigate any clear future for the company or its core product. They’ve shown zero interest in geographical expansion and have instead rested on the belief that being hip in a few places would be enough.It’s not hard to see why. The company had a meteoric rise and remains favored among fans for its array of stickers, emoji-like cartoons that they often paid for. It’s easy and comfortable but accounts for only 13% of revenue and has stagnated.

Now, Line may merge with Yahoo Japan’s parent, Z Holdings Corp., which itself is a part of the broader family of SoftBank Group Corp., Bloomberg News reported early Thursday, citing Z Holdings.

Both Nikkei news and Kyodo wrote about the talks late Wednesday, driving Line’s U.S.-listed depositary receipts up more than 26%. Z climbed as much as 17% in Tokyo on Thursday morning, while Line’s Tokyo-listed shares didn’t transact because bids far exceed offers.Line’s parent, South Korea’s Naver Corp., could reach an agreement with Z as soon as this month in a deal that would see the two have a 50% stake each in a holding company that would own both Line and Yahoo Japan, Nikkei reported. Line confirmed that it’s considering the idea, along with other opportunities to boost value.

To be frank, this is the best opportunity Line is likely to ever get. 

Most of the Tokyo-based company’s revenue comes from advertising fed to its audience of 164 million monthly active users. Other businesses, such as content and fintech, haven’t gained much traction despite years of trying. It all comes down to expanding the number of chat users and extracting more from them.

Yet after seven years in operation, Line’s core instant messenger product has been unable to expand much beyond its four key markets of Japan, Taiwan, Thailand and Indonesia. That it can’t even make headway in South Korea, the homeland of its parent company, says a lot about ineffective management. You knew it was desperate when it announced a move into the cryptocurrency business.

I believe that a merger with Singapore-based internet company Sea Ltd. would make more sense, given there are more growth prospects in Southeast Asia than in North Asia. But right now, Line should settle for any dance partner it can get. After losses in six of the past eight quarters and meager revenue growth, I suspect the recent run-up in its stock has been spurred by the belief it will eventually be bought. 

Though that may finally be happening, Z is not exactly an inspiring match. Its own revenue and earnings growth have been lackluster. At least it’s profitable, which would make a pleasant change for Line investors. Yahoo Japan’s major hope for the future is to expand in e-commerce, advertising and mobile payments. Having an instant messenger product in the portfolio would certainly help it further those goals. Still, it would likely ensure Line’s user numbers remain stagnant given the lack of growth in the Japanese economy and population.  

Being part of the SoftBank stable might not be a bad thing, either. Founder and Chairman Masayoshi Son is a born salesman and loves to talk up his portfolio companies. If he’s willing to spend cash to help a Line-Yahoo entity expand, then they may be able to gain some real marketing clout against rivals like Rakuten Inc. and Amazon.com Inc.  

But it would certainly mean the end of Line as we know it. 

To contact the author of this story: Tim Culpan at tculpan1@bloomberg.net

To contact the editor responsible for this story: Patrick McDowell at pmcdowell10@bloomberg.net

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

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

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