Line expands into cryptocurrency trading amid surprise loss

by BLOOMBERG

Line Corp., Japan’s biggest messaging service, reported a surprise loss in the fourth quarter and said it is expanding into financial services including cryptocurrency trading.

The company lost 4 billion yen ($37 million) in the quarter, compared with estimates of 2.34 billion in profit, according to Bloomberg data. Net sales hit 45.91 billion yen, compared with the estimated 44.69 billion yen.

The company established Line Financial Corp. on Jan. 10 and has already applied for a license to open a cryptocurrency exchange in Japan, according to a statement. Line is also considering expanding its cryptocurrency operations to Hong Kong and Luxembourg next, according to people familiar with the matter.

Since Line’s listing in July 2016, the company has scaled back its global ambitions to focus on markets where it already has top share — Japan, Taiwan, Thailand and Indonesia. Faced with a stagnant user base, Chief Executive Officer Takeshi Idezawa has set out to transform the messaging app into an all-in-one communications and entertainment service over the next five years. He has centered it on video and everyday services powered by artificial intelligence. Adding financial offerings may help reduce the company’s reliance on advertising revenue and offer a way to gain subscribers in countries dominated by Facebook Inc.’s Messenger and WhatsApp.

“We started Line messenger in 2011, in the midst of a paradigm shift brought about by smartphones,” Idezawa said at an earnings briefing in Tokyo on Wednesday. “We believe AI and fin-tech are poised for a similar paradigm shift this year and that’s where we will focus our strategic investments.”

The shares rose 2.6 percent in Tokyo before the financial results were reported, adding to gains after Bloomberg News first reported the expansion. Expenses rose in the quarter because of upfront costs for AI speakers and game marketing spending.

Line will invest 30 billion yen in fin-tech and AI operations this fiscal year, Idezawa said. Starting from the current quarter, the company will break out earnings results for the two business.

The company plans to provide the offerings inside its messenger app, according to the statement. Some services may be offered as a stand-alone brand, the people said, asking not to be named because the details are private. The insurance business will focus on resale, centered initially on the Japanese market where commissions are high, they said. Line is also considering applications of blockchain technology in countries with underdeveloped financial infrastructure to enable services such as the such as the ability to pay utility bills via mobile phone.

The company said it is stepping up hiring of specialists in financial technology and blockchain around the world. It has received hundreds of applications, according to the people.

Line has been offering a smartphone wallet service since 2014. Line Pay has 40 million registered users worldwide. Transaction volume jumped to 450 billion yen last year, bolstered by users in Taiwan who turned to the service to pay their taxes.

The number of monthly active users in the core four countries remained mostly unchanged at 167.5 million users, with Japan accounting for about 40 percent. The company reported sales grew 19 percent to a record 167 billion yen last fiscal year, as ad revenue rose 40 percent in the period. Sales of digital stickers climbed 3 percent, while those of games declined 10 percent.

The company, which has been offering wireless service as a mobile virtual network operator since Sept. 2016, announced a partnership with Masayoshi Son’s SoftBank Group Corp. Under the agreement, SoftBank will buy 51 percent of Line’s MVNO unit by March to help expand operations.

Line’s plan to enter cryptocurrency space comes just days after a domestic exchange called Coincheck Inc. said hackers stole nearly $500 million in digital tokens. The heist revived concerns about security in the country where the mainstream public was first exposed to cryptocurrencies with the robbery of Tokyo-based Mt. Gox in 2014.

“We have no plans to issue Line coin or anything like that,” Idezawa said. “But we are looking broadly at cryptocurrencies and blockchain in our plans and discussions with potential partners. We plan to pursue a whole range of opportunities.”