Japan messaging service Line posts surprise loss amid higher outlays for new businesses

[TOKYO] Line Corp, Japan's biggest messaging service, fell the most in nine months in Tokyo after reporting a surprise loss for the fourth quarter amid stepped up investment into new businesses.

The shares declined as much as 5.6 per cent on Thursday, the biggest intraday drop since April. Line lost four billion yen (S$48 million) for the quarter, compared with estimates of 2.34 billion yen in profit, according to Bloomberg data. The company cited upfront costs for AI (artificial intelligence) speakers, game marketing spending and one-time losses related to venture investments and equity method subsidiaries.

Since Line's listing in July 2016, chief executive officer Takeshi Idezawa has been under pressure to deliver earnings growth as user base stagnated. Mr Idezawa's plan is to transform the messaging app into an all-in-one communications and entertainment service over the next five years. He has centred it on video and everyday services powered by AI. The company on Wednesday announced plans to expand into financial services, including cryptocurrency trading, loans and insurance. The offerings may help reduce Line's reliance on advertising revenue and offer a way to gain subscribers in countries dominated by Facebook's Messenger and WhatsApp.

"There are risks (financial risks) and rewards (stock price bubble)" for entering the cryptocurrency space, Atul Goyal, an analyst at Jefferies Group, wrote in a report. "We wonder when investors will see profits."

The company established Line Financial Corp on Jan 10 and has already applied for a licence to open a cryptocurrency exchange in Japan, according to a statement. Line is also considering expanding its cryptocurrency operations to Hong Kong and Luxembourg next, according to people familiar with the matter.

The number of monthly active users in the core four countries remained mostly unchanged at 167.5 million users, with Japan accounting for about 40 per cent. The company reported sales grew 19 per cent to a record 167 billion yen last fiscal year, as ad revenue rose 40 per cent in the period. Sales of digital stickers climbed 3 per cent, while those of games declined 10 per cent.

Line, which has been offering wireless service as a mobile virtual network operator since September 2016, also announced a partnership with Masayoshi Son's SoftBank Group. Under the agreement, SoftBank will buy 51 per cent of Line's MVNO unit by March to help expand operations.

BLOOMBERG