Unexpected Obstacle
A big roadblock has appeared in front of Naver Line’s global IPO plan in the second half of this year. They say that Line Music, a key business of Naver Line, has not performed well.
According to the IB industry, Morgan Stanly, Goldman Sachs and JP Morgan, lead managers for Naver Line, are postponing the start of IPO work scheduled for Sept. Originally they were planning to complete the IPO in Nov., or early next year at the latest. Three things have delayed Naver Line’s debut on the global stock market.
First, the owner’s weak will made Naver Line miss the deadline. Originally, the working-level team including Naver CFO Hwang In-joon failed to receive approval from Naver Chairman Lee Hae-jin, even though the team pushed forward with a plan to list Naver Line on the stock market both in the U.S. and Japan at the end of last year. Thus, they brooded over the implementation of their plan with lead managers until the beginning of this year.
Chairman Lee pointed out that the IPO may lower his managerial rights. According to Lee, if Naver Line is listed on stock markets, stockholders will be able to strengthen their power. During such a process, it will be difficult to make quick decisions, making Naver Line miss a chance for much more growth.
This has forced major market brokers such as Goldman Sachs to put the Line project on the back burner. This is not the first time, either. Last year, Naver Line was relegated by Alibaba in the U.S. This year, Japan Post Group has out-dueled Naver Line in the Japanese stock market.
Finally, Naver Line’s worse-than-expected performance is weakening expectations for its IPO. Line posted 145.2 billion won (US$123.0 million) in sales in the first quarter of 2014, and 221.6 billion won (US$187.7 million) in sales in the fourth quarter of the same year. This means that its sales grew a whopping 32 percent in three quarters. But during the first quarter of this year, its sales only grew to 235.8 billion won (US$200.0 million), an increase of only 14.2 billion won (US$12.0 million) from the end of last year. In the second quarter, the figure slid by 2.2 billion won (US$1.9 million) to 233.6 billion won (US$197.8 million). Negative growth for mobile companies does not mean simple stagnation, but a problem in their business, since better performance and the speed of their growth is vital to them.
Naver Line explained that new services increased their operating expenses. But it is rumored that its music service is not growing as fast as expected. Line Music, a paid music streaming service in Japan, is going well enough, but the market itself is not big. Last year, the Japanese music streaming market was about 30 billion won (US$25 million). So, even if Line Music becomes a dominant player, its sales will not be as high as hoped.
But Line Music is splurging on marketing for its business expansion. Its advertisement expenses hit 86.7 billion won (US$73.4 million) in the second quarter. To make the matters worse, Mix Radio, which Naver took over to make a foray into a music market of another type, has not shown an impressive scorecard compared to its cost. Naver took over Mix Radio from Microsoft. In the second quarter of this year, the music download service cost Naver an unexpected 20 billion won (US$17 million). But, it is said that Mix Radio still has a long way to go to generate profits.
These facts support some analyses that even though Line has more than 200 million monthly users as a global mobile messenger service, the service will need more time to prove a business value that matches its size. That is to say, Line had an opportunity for its global IPO shortly before and after a successful IPO by Alibaba, but has lost its timing. So at this moment, it has become difficult for Naver Line to see stock markets recognize it as a company as valuable as it expected to be.