Wall Street finally got the chance to invest in a messaging app Thursday, and investors’ enthusiastic response could be a good sign for Facebook Inc. and Snapchat.
Shares of Line Corp. LN, +26.61% a Japanese messaging app, rose more than 26% in their first day of trading after the company opened well above its $32.84 issue price. While this app may not have the perfect high-growth story, experts say Wall Street’s enthusiasm amid a drought of tech offerings shows a belief in messaging apps’ potential for mobile dominance in the future.
Line sold 35 million shares of stock, split between 22 million American depositary receipt shares listed on the New York Stock Exchange and 13 million shares on the Toyko Stock Exchange, the latter of which are set to trade Friday. It raised $1.14 billion for the largest tech offering of the year, which valued the company at nearly $7 billion.
Also read: 5 things to know about Line
Notably, Line also marked an opportunity for investors to get in on the messaging trend, as other leading messaging apps are cloaked within large companies, such as Facebook’s FB, +0.44% Facebook Messenger and WhatsApp, said Jan Dawson, chief analyst for JackDaw Research. Fast-growing stand-alone messaging apps, such as Snapchat, are still private and in early revenue stages.
“Some of the biggest platforms are the ones that don’t really generate any revenue and you can’t invest in directly,” Dawson said.
Messaging apps are a “hot area,” and Line shows investors what the public valuation of a messaging app can be, Dawson said. Additionally, the appearance of a tech offering in an otherwise slowed IPO market was likely a welcome sight for investors.
Line, however, is still not the best example of the messaging app trend, Dawson said, because the company’s user growth appears to have plateaued. Line had 218 million global monthly active users in March 2016, up only slightly from 215 million in December 2015 and 212 million in September 2015. Additionally, the number of monthly paying users fell to 8.4 million in March 2016 from 8.8 million in December 2015.
The slowing growth may be a result of the company’s attempt to expand beyond of its four core markets of Japan, Taiwan, Thailand and Indonesia, Dawson said. The company said in its prospectus that it plans to pursue further user growth in Asia.
Growing its sticker business, a key components for its revenue, may also be tough globally, said Max Wolff, chief economist at Manhattan Venture Partners, as international consumers may not want to pay for the feature.
Overall, though, the opportunities for messaging apps are large and could potentially be an “app killer” for mobile offerings in other fields, he said. Messaging apps could challenge with e-commerce and other functions such as buying an airplane ticket or shopping, in addition to using a chat bot to execute tasks through the app, he said.
“I think commerce and heavy functionality are coming to the messenger system, as are bots,” Wolff said.
Line, which Wolff said is “innovative,” already has some of these services.
Dawson said he believes Line may be acquired by a bigger company, which can either add more features to the app or help it expand internationally.
“Its future may be a combination with another company,” Dawson said.
Source: New feed