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Business

Ads buoy Line's growth as user income slips

Tapping other Asian markets is next challenge for Japanese chat platform

Line President Takeshi Idezawa, left, on Wednesday held the company's first full-year earnings briefing since going public.

TOKYO -- Advertising and other services for businesses have become key profit generators for Japanese messaging app provider Line, which is setting its sights elsewhere in Asia as its home market matures.

Line released on Wednesday its first full-year results since its 2016 stock market debut. Over the last year, the company "got ready for the challenge of becoming a global player," President Takeshi Idezawa told reporters Wednesday.

Operating profit surged more than tenfold to 19.8 billion yen ($174 million) in the year ended Dec. 31, while revenue climbed 17% to 140.7 billion yen, driven largely by a 50% jump in advertising revenue. Line's 66 million monthly active users in Japan make the platform a valuable advertising medium. Net profit for 2016 came to 7.5 billion yen, a sharp turnaround from the previous year's 7.5 billion yen loss.

Line offers companies official accounts for sending information to customers, charging 10 million yen or more for three months. A total of 549 of these accounts were open at the end of December, 130 more than a year earlier. The interest in character stickers for users to drop into conversations is so strong that there is a waiting list, despite the 10 million yen-plus price tag.

Purchases of targeted advertising between news articles and on users' timelines have also picked up. Ads accounted for 42% of Line's total revenue in the October-December quarter, up from 33% a year earlier. "It'll top 50% soon," Idezawa predicted.

The consumer-oriented services that had previously fueled Line's growth have not fared as well. The company reported 26.5 million monthly active users on its gaming platform last quarter, down by 5.4 million on the year, while full-year content-related revenue slid 9%. The fact that business services more than offset this slowdown underscores Line's growth potential.

Yet growth will slow regardless if Line's business remains so heavily tilted toward Japan. Expansion abroad remains crucial.

Idezawa took a grim view of the industry situation, asserting that "worldwide jockeying for position among messaging apps is over." Though Line operates in the U.S. and Europe, it has essentially ceded those regions to Facebook, the dominant player.

Line narrowed its overseas strategy last year to focus on markets that it has some hope of monopolizing, starting off with Thailand, Taiwan and Indonesia. Monthly active Line users in those markets rose by 14 million last year to 101 million -- half again as large as the Japanese user base.

The problem is that the company has not fully leveraged its scale. Overseas operations accounted for just 27% of total 2016 revenue. "A strategy will be needed to increase revenue per user as [Line] has in Japan," said Hiroshi Naya of the Ichiyoshi Research Institute.

Competition going forward will be based on depth of services, Idezawa said. Line is already the top messaging app in Thailand and Taiwan. Now it needs to roll out the business-oriented services that the company cultivated in Japan, adapting them to individual markets. If all goes well, Line will have a better chance of coming out on top in Indonesia and making early inroads into other countries with nascent messaging markets.

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