Line Corp. posted its biggest drop yet as analysts cut ratings after fourth-quarter profit and revenue that missed estimates.
The stock finished more than 10 percent lower at ¥3,755 in Tokyo on Thursday, the steepest decline since listing in July. Line’s operating profit of ¥1.6 billion ($14 million) in the quarter ended Dec. 31 was less than the ¥5.34 billion average of analysts’ projections compiled by Bloomberg. Sales reached ¥37.5 billion in the period, short of the predicted ¥38.7 billion.
Chief Executive Officer Takeshi Idezawa is under pressure to build on the 20-plus percent share price gain since the 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.
“The most disappointing point should be the slower expansion of ad revenue than investors have expected,” Naoshi Nema, an analyst at Cantor Fitzgerald, wrote in a report.
Morgan Stanley MUFG Securities, CLSA and BNP Paribas cut their ratings on the company overnight, and another four brokers lowered their price targets. Of the 19 analysts tracked by Bloomberg, five recommend buying the shares and four have a sell rating.
Line said its monthly active users totaled 217 million as of December, a 1 percent gain from a year earlier. Subscribers rose 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 dropped 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 and ¥7.6 billion.
“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.”