WhatsApp Rival Line’s Hefty Sticker Price
Mobile Messaging Service Needs to Justify Its Valuation
Japan's biggest mobile messaging service, Line, actually collects revenue but it needs a lot more than that to justify its valuation.
By Aaron Back
With Facebook having shelled out $19 billion for WhatsApp, anyone buying into chat apps should prepare for sticker shock. When it comes to Line, an Asia-based app, prepare for two of them.
Line, developed by Korean Web-search firm Naver, is the dominant mobile messaging service in Japan, and is becoming the top player in Taiwan and Thailand. Whereas WhatsApp is essentially a pure messaging platform, Line is ahead in coaxing users to pay for mobile games and virtual stickers.
Don’t scoff at Line’s stickers: 1.8 billion were sent in a single day recently. Most are free, but users pay a dollar or two for poses of, say, Hello Kitty. Some young users are giving up on words altogether.
Line’s revenue expanded more than tenfold last year to $545 million. China’s Tencent Holdings says WeChat and a companion chat app, Mobile QQ, together brought in about $95 million from games in the fourth quarter. Yet it has a much larger user base.
Naver’s stock has nearly tripled in the past year. Its core search and portal business is probably valued at about $6.8 billion, or 15 times estimated 2014 earnings, says Nomura’s Eric Cha. The remaining $18.2 billion of Naver’s market cap is the implied value of Line.
Line has 400 million registered users, up from 300 million in November. It doesn’t detail monthly active users, the industry standard. But Nomura estimates these are a bit more than half the total; 210 million implies a value of $87 each. That is about double the $42 Facebook paid per WhatsApp user but on par with estimates for WeChat’s valuation.
Some premium is justified given Line’s monetization prowess. Yet relative valuations assume Facebook didn’t overpay for WhatsApp, which is far from certain. Using the same assumptions, Line is valued at more than 33 times sales. It isn’t clear if Line makes a profit. To justify that multiple, investors must hope Line’s stickers and games aren’t a fad, and it has to add new markets. Indonesia, once a BlackBerry stronghold, is a big one that is up for grabs.
But given the glut of competitors, a lot has to go extraordinarily right for Line at this valuation. The biggest red flag in this industry is that sticker shock just doesn’t seem that shocking anymore.