September 23, 2014 / 11:59 AM / in 3 years

Naver says held back Line IPO to further build business

SEOUL (Reuters) - Naver Corp held off on an IPO for its Line Corp unit on the belief that the messaging app operator can command a better valuation by further building its revenue and profit, Naver’s chief financial officer told Reuters on Tuesday.

The logo of free messaging app Line is pictured on a smartphone and the company's stuffed toy in this photo illustration taken in Tokyo September 23, 2014. REUTERS/Toru Hanai

South Korea-based Naver said on Monday that it does not plan an initial public offering for Line [IPO-LINE.T] this year, dashing market expectations for a deal that one banking source has said could value Japan-based Line at $10 billion-$20 billion.

Hwang In-joon, Naver’s CFO, also said that while Naver is open to strategic alliances or investments for Line, there are no such discussions ongoing and he does not consider such tie-ups to be crucial for Line for now.

“Market conditions on their own don’t look bad, but the real question is whether now is the right time for us to step forward,” he said. “And we ultimately decided that it’s better to further build up the business than what it is this year.”

Preparations for a Line IPO continue, he said.

A banking source told Reuters in July that Line would likely list in November. A Line IPO would be the first by a major chat app operator.

Naver said on Monday that the operator of the Line app, first developed to overcome downed communications in Japan after the March 2011 earthquake and tsunami, is still considering whether to seek a listing, either in Japan, the United States, or both, but gave no details on possible timing.

The decision to hold back on an IPO followed the record-breaking $25 billion listing by Chinese e-commerce giant Alibaba Group Holding Ltd. A successful Alibaba IPO had been expected to help smooth the way for an offering by Line.

The decision also led to speculation that Naver may be seeking a strategic investment from a company, Alibaba in particular, for Line to further bolster the company’s value before an offering.

Alibaba declined to comment on Tuesday.

Hwang said he did not believe that Alibaba’s massive listing had sapped investor demand for tech shares.

“Alibaba’s IPO has provided momentum for the valuation of IT stocks right now,” he said in a phone interview.

VALUATION QUEST

Line’s second-quarter revenue expanded by more than half on an annual basis, fueled by growth outside its home market, to 183.2 billion won ($176 million). That was a 26 percent increase from the first quarter.

Naver had 918 billion won in cash and cash equivalent at the end of June.

“If there is a need, Line can borrow funds. Unless Line does some extraordinarily large marketing or decides to go the M&A route, what they have already is enough,” said Korea Investment analyst Hong Jong-gil.

Line does not break out monthly active users (MAUs), the key metric for chat app operators, but said in late July that it had 490 million total users.

Brokerage HMC Investment & Securities estimated on July 17 that each of Line’s monthly active users would have a market value of 92,810 won ($89). It estimated that Line had 230 million monthly active users, which would put its market value at about 21.3 trillion won.

By comparison, social media giant Facebook Inc paid $42 per monthly active user when it bought chat service WhatsApp in February.

Line is expected eventually to raise funds to boost growth outside Japan and compete with rivals such as WhatsApp and Tencent Holdings Ltd’s WeChat, the dominant chat app in China.

Morgan Stanley and Nomura Holdings Inc had been tapped to manage Line’s IPO, a source has said previously.

(1 US dollar = 1,039.5000 Korean won)

Reporting by Se Young Lee; Editing by Tony Munroe and Ryan Woo

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