Line Sees Decline in Both Sales Growth Rate and Operating Loss Due to COVID-19

[Asia Economy Reporter Eunmo Koo] LINE's revenue growth rate and operating losses have both decreased due to the impact of the novel coronavirus infection (COVID-19). While the negative effects of COVID-19 are expected to deepen in the second quarter, LINE's stock price is forecasted to remain largely stable around the tender offer price of 5,380 yen.

On the 1st, Samsung Securities reported that LINE's operating loss in the first quarter of this year was 4.3 billion yen, significantly down from 11.4 billion yen in the fourth quarter of last year. Samsung Securities analyst Donghwan Oh explained in a report that day, "The reduction in operating loss is due to marketing expenses dropping 35.8% from 7.5 billion yen in the previous quarter to 4.8 billion yen amid the COVID-19 situation." However, revenue growth also slowed to 6.6% year-over-year as the growth rate of advertising revenue, the main growth driver, shrank from 28.7% in the fourth quarter to 18.6% in the first quarter.

Considering that Japan declared a state of emergency due to COVID-19 starting from the 7th, the negative impact on advertising revenue is expected to intensify in the second quarter. In particular, it is anticipated that structurally slowing segments such as the Livedoor portal and account advertising will be significantly affected. Nevertheless, analyst Oh noted, "It is encouraging that impressions for display ads increased by 140% year-over-year, driven by strong performance of smart channel video ads like 'Talk Head View' and LINE News ads, even amid the COVID-19 crisis," and forecasted that "advertising revenue growth will recover to the mid-teens percentage range starting in 2021 when the COVID-19 situation in Japan normalizes."

LINE Pay remains stagnant, but the merger outlook is optimistic. LINE Pay's global gross merchandise volume (GMV) in the first quarter decreased by 8.5% from the previous quarter to 325 billion yen, and monthly active users (MAU) dropped 8.5% to 5.04 million. Analyst Oh analyzed, "The slower-than-expected growth of LINE Pay is due to the offline payment culture being predominantly cash-based and not yet improved, and the limited number of online merchants within LINE." However, with Z Holdings, which is about to merge, having strong internal online commerce sectors such as Yahoo Shopping and ZOZOTOWN, and the possibility of partnerships with PayPay's merchants, it is evaluated that LINE Financial's competitiveness can be strengthened if management integration is achieved.

The management merger is expected to proceed as planned. Analyst Oh stated, "Although recent stock price volatility of LINE and Z Holdings has raised concerns among some about changes in the management integration schedule and transaction terms, the companies have confirmed that there are no changes to the existing integration conditions." They are currently awaiting approval from the Japan Exchange, and after approval, plan to complete the merger by October following a tender offer for LINE shares. LINE's stock price is expected to remain largely stable around the tender offer price of 5,380 yen.

This content was produced with the assistance of AI translation services.