Morningstar | Line's Advertisement Overseas Business Appears to Pick up Faster than Anticipated
While increasing marketing and personnel costs depress Line's profitability in the short term, we are encouraged by the robust growth of its advertisement business. We view the growth as demonstrating the strength of Line's network effect, which is the source of our narrow moat rating. In particular, 20% increase on ads impressions from the March quarter suggests that ads business in overseas may pick up much faster than we had anticipated, and in fact, overseas revenue proportion in the June quarter has increased to 29% from 26% on the previous quarter. We therefore reiterate our view that Line's strong user base in Japan, Taiwan, and Thailand will be quite attractive for advertisers, which will continue to drive Line's revenue in the longer term. We plan to revise our numbers after visiting the company in early August, but do not expect to make material change to our fair value estimate of JPY 5,200.Line's June quarter revenue increased 27% from the previous quarter, driven by the 42% increase on advertisement revenue. While cost per mille (advertisement revenue paid over 1,000 impressions) decreased to JPY 434 from JPY 517 from the previous quarter, we assume that launch of overseas advertisement business have temporary drug down the product mix. In fact, ads impressions increased 20% from the previous quarter, exceeding our expectation of 15%. Overall, we are satisfied with the future growth potential of Line's advertisement business.
Line is a global platform for mobile messaging and communication services, as well as provides communication and content and advertising services. Communication and content are primarily provided to end users via various communication and content. Communication mainly includes LINE Stickers. Content includes LINE Games and LINE PLAY. Others within Communication and Contents include LINE Friends service. Advertising services are provided via LINE advertising, livedoor blog and NAVER Matome. LINE advertising includes "messenger ads" such as LINE Official Accounts, LINE Sponsored Stickers and LINE Point Ads and "performance ads" on services such as Timeline and LINE NEWS.
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