Line hunts for M&A with $1.3b IPO war chest, aims to be one-stop shop

A customer uses WeChat to pay at a Carrefour outlet in Shenzhen, Guangdong province. [Photo/China Daily]

Line Corp plans to use part of the $1.3 billion it garnered from last month's initial public offering to bankroll acquisitions of content and technology, transforming its messaging service into a one-stop shop for Asian social media users.

Japan's most popular messaging service is gunning for companies in areas ranging from artificial intelligence chatbots and advertising to video streaming and games, including those with augmented reality features, CEO Takeshi Idezawa said in an interview.

The Tokyo-based company has assembled a dedicated team to scope out and review possible targets across the globe. The idea is to build Line into a "smart portal," supplementing its mainstay features of chatting, stickers and games with commercial services such as food delivery, job searches and travel reservations in main markets.

"We are very open-minded about the size and geography" of potential acquisitions, Idezawa said. "What's important is that they are the right fit." Both the business and the talent that comes with it are important criteria, he said.

Messaging services globally have become prime mobile destinations as they incorporate functions beyond simple chatting, such as media streaming and online shopping. Apps like Line and Facebook Inc's Messenger will evolve into "virtual agents" that provide services well beyond communication in three to seven years, said Julie Ask, an analyst with Forrester Research.

She said one example of such technology is Amazon.com Inc's Echo, which deciphers, and acts on, spoken commands. The popular portable speaker can hail taxis or buy more shampoo, by analyzing a user's shopping preferences and history. Tencent Holdings Ltd's WeChat is increasingly woven into the fabric of its about 550 million users' daily lives in at least 200 countries and regions, letting them book hotels and buy products from a single app.

Line has the potential to offer the same and possibly more. Its users in Japan spend at least five times as much time on the app as they do on Amazon, and their activities range from chatting to reading news and ordering food. That creates data the company can use to better understand its customers. Line in April announced the launch of an AI research lab, and funds from the IPO could allow it to buy startups that speed up development.

Beefing up the platform with more commercial services requires close ties with local partners like retail shops, taxi companies or banks, especially in developing countries such as Indonesia and Thailand. That's where the IPO cash war chest comes in, which may allow Line to invest in joint ventures with local firms or swallow them whole.

"Integrating payments and commerce services－something we've already seen very successfully through WeChat in China－is a big opportunity for messaging apps," said Jack Kent, an analyst with IHS Markit Ltd. "But it's not the same as launching a game or content service, which scales easily. When you're integrating payments, taxi hailing or other forms of retail and commerce services, those are done at a local level."

As part of ongoing efforts to be more than just a messaging app, Line has teamed up with local partners in Southeast Asia such as motorbike taxi on-demand service Go-Jek in Indonesia. In April, it also entered a joint venture with a Thai firm that enables users in the country to pay for subway rides, restaurant meals and online shopping through its app.

Last year, it partnered with a Visa Inc. subsidiary to bolster payment security, and bought a Japanese startup that provides payments software. And in January, it acquired another Japanese startup to strengthen its advertising on mobile devices.

While Line is the most popular chatting app in Japan, it's runner-up to BlackBerry Ltd's messaging service in Indonesia, a country with a population of at least 253 million. Idezawa said he will continue to focus on Southeast Asia, where the number of Line's monthly active users has risen in recent months, with a focus on winning the top spot in Indonesia.

In Indonesia, Line is installed on 71 percent of Android devices, behind BlackBerry Messenger's 86 percent, according to researcher SimilarWeb. Besides beefing up marketing, analysts say Line's options in the country include striking partnerships to add more local content like news or music, and growing its commerce services. Doing so also works toward its long-term goal of completing the "smart portal".

"What these platforms need besides audience is context, or data about the users. These platforms need to go wide to accomplish that: payments, calendar, maps, etc," said Forrester's Ask. "Messaging platforms are not the end game."

Bloomberg