Why Line's wait for IPO cost it $4 bn

Line is gearing up for a battle with larger rivals such as Facebook and WeChat as it looks to expand its user base beyond its strongest markets in Asia

Line has finally pulled the trigger on an initial public offering after a two-year hiatus. That period of hesitation may have cost the messaging service $4 billion in valuation as Facebook began encroaching on its turf and markets cooled on technology company debuts.

Japan's leading mobile messaging service is aiming to raise as much as 113 billion yen ($1 billion) in July at a market value of roughly 588 billion yen, according to data in its Friday IPO filings. That's down 40 per cent from an estimated 1 trillion yen when it first filed for an offering in 2014. The price range will be set on June 27, and the final price July 11.

That may be as good as it gets. Line is gearing up for a battle with far larger rivals like Facebook and China's WeChat as it looks to expand its 218 million user base beyond its strongest markets of Japan, Taiwan and Thailand. The Tokyo-based company, owned by South Korean portal Naver, plans to use the proceeds to spearhead an expansion across Asia and, eventually, the US.

Line's asking price contrasts with the princely sums conferred upon rival messaging services. Facebook paid $22 billion for WhatsApp - which barely had a business model. Snapchat was last valued at $18 billion. Line's own current valuation of $5.5 billion implies it's asking investors to pay about $25 per user, a far cry from the $55 a user Facebook forked over for Jan Koum's app in February 2014.

Facebook and Tencent Holdings already hold sway in the US and China, the world's two largest internet markets. WhatsApp and Messenger each count about a billion users and dominate through sheer numbers, while Tencent's WeChat has become intertwined with the daily lives of its 762 million users, offering everything from car bookings to payments.

To be sure, Line has killed it at home. Debuting in 2011, it pioneered the business model of selling stickers and other digital knickknacks that people buy and share during chat sessions on phones. That approach earned the Japanese company top spot in global smartphone revenue rankings last year, excluding games, according to market researcher App Annie.

But user growth plateaued as it made limited headway beyond its home country. The company generates most of its sales at home: while Japanese users accounted for 27 per cent of Line's monthly active users, 69 per cent of its revenue came from Japan in the fourth quarter of last year.

Line is now valued at about 4.9 times its 2015 sales. That falls short of Facebook's price-to-sales ratio of 11.3 times, based on revenue estimates.

The structure of Line's IPO hints at its longer-term geographical ambitions. It plans to sell almost two-thirds of its offering in the US, an unusually large allocation for a Japanese company.