Japan-based messaging company Line reported a massive net loss in the first quarter of the year, despite growth in revenue across all business lines.
Net loss increased from JPY1.7 billion ($15.2 million) in Q1 2018 to JPY10.7 billion in the recent period, on revenue of JPY55.3 billion, up 13.5 per cent year-on-year.
Turnover at its core advertising business rose 18.7 per cent to JPY29.9 billion, and messaging and content revenue increased 3.4 per cent to JPY18.1 billion. Revenue at its strategic business, covering digital payments and e-commerce, grew 21.3 per cent to JPY7.4 billion.
In a research note, Jefferies equity analyst Atul Goyal branded Line’s revenue growth as “pedestrian”, making it difficult to position it as a high-growth company and support its high valuation.
Operating expenses jumped 29.4 per cent year-on-year to JPY63.4 billion, with marketing costs rising 91 per cent to JPY7.5 billion.
Monthly active users (MAUs) fell from 165 million at end Q1 2018 to 164 million: figures were up in Japan and Thailand, flat in Taiwan and down in Indonesia.
Goyal predicted the company’s losses are set to increase, highlighting management comments that an operating profit margin of 17 per cent may not be sustainable in its core business, as revenue growth could be lower and costs higher.
The strategic business faces intensifying competition in digital payments, which could result in substantial and sustained losses for the division.
Goyal was also bearish on the future prospects of Line Pay, which faces severe competitive disadvantage in a fragmented industry, along with competition from some of the largest and most resourceful companies in Japan, most notably PayPay, a JV between SoftBank and Yahoo Japan.Subscribe to our daily newsletter Back