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Everything Investors Need to Know About the Line IPO

Last week, Line Corporation (NYSE:LN), creator of a messaging app that’s incredibly popular in Asia, started trading on the NYSE.

On this edition of Industry Focus: Tech, Dylan Lewis and Daniel Sparks give some background about the company and its impressive growth thus far, break down the company’s revenue for the past year, and look at a few of the most pressing concerns that investors should know about before buying into this newly public company.

A full transcript follows the video.

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This podcast was recorded on July 15, 2016.

Dylan Lewis: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. It’s Friday, July 15, and we're talking about the year's hottest tech IPO. I'm your host, Dylan Lewis, and I'm joined on Skype by senior tech specialist Daniel Sparks. Daniel, how's it going?

Daniel Sparks: Good, how are you, Dylan?

Lewis: Doing all right. Yesterday, shares of Line Corporation began trading on the public exchanges. This is an online messaging company. They're trading on the New York Stock Exchange under the symbol LN. Shares are also available on the Tokyo Stock Exchange. The first day of trading treated the company pretty well, right, Daniel?

Sparks: Yeah, shares rose about 30% -- around there -- in the first day of trading. Market cap now is around $8 billion. Like you said, the hottest tech IPO this year. That's one of the reasons it's so well covered. I think you mentioned it's under the symbol LN. It's a Japanese messaging service, similar to WhatsApp Messenger. Huge emphasis on stickers, has messaging voice calls, and they're always trying to add more services for people.

Lewis: I think one of the more interesting stats that I've seen around this IPO, and market news in the past week, is a combination of bullishness from the Line IPO and some of the crazy price movements that we've seen from Nintendo (NASDAQOTH:NTDOY) following the launch, and widespread cultural phenomenon of Pokemon Go. Those two things have pushed market sentiment and the Tokyo Stock Exchange to its best single-week gain since December of 2009. Last time I checked, it was up like 9% this week.

Sparks: Yeah, the timing definitely couldn't have been better for Line to go public.

Lewis: Yeah, I know a lot of people were worried when Twilio (NYSE:TWLO) went public about a month ago, with all the Brexit concerns and things like that, that it was a really poor time to go public. It seems like conditions were pretty great for Line. No complaints there, I'm sure.

Why don't we dive into the business a little bit?

Sparks: Yeah. They started as a messaging service about five years ago. They have around 218 million monthly active users. They're primarily coming from Japan. The service is really popular in Japan, Taiwan, and Thailand. In Indonesia, Line is second to BlackBerry (NASDAQ:BBRY)Messaging Service. So Blackberry is good at something. Stickers, like I said, are a huge part of their business model. I think it was the global chief officer pointed to Pokemon Go's success this week as evidence of the value of intellectual properties and characters. They're really big on characters, which is interesting. And you'll see, whenever you see references to Line, all their press material, they always have these cartoon characters showing up. That's somewhat unique, because emojis, in general, are popular right now. But they're really focusing on building out this intellectual property of characters and cartoon characters.

Lewis: Yeah, it seems like it's a very big part of their strategy, and something they anchor to as a differentiator.

Sparks: That's what I would say, is differentiation.

Lewis: You talked about their main markets: Japan, Taiwan, Thailand, and Indonesia. I think those make up about 150 million of the 218 million monthly active users. Japan, I believe, contributes about 70% of revenue for the business. So, they're heavily concentrated in East Asia. They've pulled in roughly $1.2 billion in revenue in the trailing 12 months. Right now, they're posting GAAP losses to the tune of about $55 million. With their current market cap, somewhere around $8 billion, that puts them at just over 7 times trailing sales, just to give you some background there.

You want to dive into how they make money, some of the different segments there?

Sparks: Yeah, I think it's worth returning to what you said, that 70% of the company's revenue comes from Japan. So investors should keep that in mind. 218 million monthly active users might seem small, but when you consider 70% of the revenue comes from Japan, clearly it's a really dominant platform there. Akin to how Facebook (NASDAQ:FB) is popular here in the U.S.

Some of the opportunities here with the...