Line quarterly profit, sales miss estimates as growth slows

Bloomberg

Line Corp.’s fourth-quarter profit and sales fell short of analysts’ estimates, as advertising revenue growth failed to make up for declines in mobile game and digital stamp offerings.
Operating profit was 1.6 billion yen ($14 million) in the three months ended Dec. 31, according to calculations based on full-year numbers released by Line on Wednesday. That’s less than the 5.34 billion yen average of analysts’ projections compiled by Bloomberg. Sales reached 37.5 billion yen in the period, falling short of the 38.7 billion yen they predicted.
Chief Executive Officer Takeshi Idezawa is under pressure to build on the 20-plus percent share price gain since an initial public offering in July. As user growth and revenue from games and digital stickers slows, the company has to come up with new ways to make people spend on what is otherwise a free messaging service. For now, Line has pinned its hopes on advertising growth as analysts project profit and sales to climb.
“Ad sales should continue to drive Line’s revenue higher in 2017, negating a content sales slowdown,” Bloomberg Intelligence analyst Anthea Lai said before the earnings announcement. “Line will likely focus on developing new ad products, such as chat bots, to sustain ad sales. Employee compensation should stabilize in 2017, given all employee stock options issued will expire by January.”
Line said its monthly active users totaled 217 million as of December, a 1 percent increase from a year earlier. Subscribers increased 3.5 percent in the previous quarter. The company has shifted its focus to the markets of Japan, Taiwan, Thailand and Indonesia. Users based in the four countries, which account for almost two thirds of the total, climbed 15 percent from a year earlier. Advertising revenue climbed 48 percent in the quarter from a year earlier, with impression-based ads accounting for about a quarter of the revenue, Line said. At the same time, sales of stickers and content such as games and comics declined 9.6 percent and 7.5 percent, respectively.
The company didn’t give an annual earnings outlook, citing difficulties in predicting the smartphone app market. For the year, operating profit and net income rose to record 19.9 billion yen and 7.6 billion yen. “In the past year we have succeeded in creating a base from which to take on the next challenge,” Idezawa said at a briefing in Tokyo on Wednesday. “We have to expand our overseas presence. We already have top share in Japan, Thailand and Taiwan. The efforts are now focused on gaining top share in Indonesia.”