Line IPO Will Establish WhatsApp Valuation

  • Line is expected to  IPO for more than $10 billion
  • The IPO should mitigate the existing fears of Facebook over-paying for WhatsApp.
  • Assuming Line can sustain a market capitalization in excess of $10 billion; WhatsApp will be worth more than $19 billion, assuming 1 billion monthly active users.
  • Owning Facebook will give investors better exposure to mobile messenger services.

Line IPO will establish WhatsApp valuation

Line is pursuing an IPO with a valuation north of $10 billion. This is shortly following Facebook’s acquisition of WhatsApp for $19 billion.

This Line IPO will help put in perspective Facebook’s WhatsApp acquisition, valued at $19 billion . Whatsapp is thought to be an important subsidiary of Facebook as it will reduce its dependency on ad-revenue.

Quick backdrop on Line

Line started as a messenger service in Japan, which came as a result of Naver and NHN Japan creating a joint venture for the mobile communication application. The mobile application was used as an alternative to text messaging, as communication was patchy due to the Tohoku Earthquake and Tsunami (cell towers were damaged).

Line proved that it can become a popular alternative to SMS (text messaging). And within two years, the app was able to attract 300 million registered users. The vast majority of Line’s users are in Japan, and South Korea. The application dominates the South Eastern corridor of Asia, where the vast majority of wealth is aggregated in Asia.

The application is expected to debut on the New York stock exchange for liquidity reasons; however some are speculating that another possibility is a dual listing on the New York and Tokyo Stock Exchange.

Impact of Line IPO on Facebook

Facebook investors were wondering whether the recent acquisition of WhatsApp was a risky gamble. WhatsApp currently has 500 million monthly active users, and by 2015 that number is expected to exceed 1 billion. In comparison Line is estimated to have 430 million monthly active users. The vast majority of Line users are in Japan, therefore, going forward it’s likely that WhatsApp will have more growth potential when compared to Line. This is because WhatsApp’s expansion is happening on a more global scale.

Currently, Line is valued at $23 per user. Currently, Line is selling services and virtual goods through the application, but given enough time, the company may offer the service as part of a subscription service a couple years down the road.

If WhatsApp was valued the same way Line is, the application would be worth $11.5 billion. It’s significantly lower than the $19 billion that Facebook bought WhatsApp for, but it at least gives investors a basic benchmark for intrinsic value.

FB-stock-chart
Source: Facebook stock price chart by Amigobulls

On July 14th news broke of Line’s IPO filing for $10 billion. Since then, Facebook has appreciated by 2 dollars, and with the blockbuster Q2 2014 earnings release yesterday, the stock should be due for even more appreciation.

Conclusion

Following the IPO, it’s highly likely that Line will appreciate in value. Assuming Line trades in the $15 billion market cap range, it will fetch a value of $35 per user.

If WhatsApp reaches 1 billion monthly active users, and users are valued at $35 each, WhatsApp will be worth more than $35 billion.

I’m starting to see the practicality behind Mark Zuckerberg’s acquisition of WhatsApp.
Amigobulls currently has a hold rating on Facebook. View Facebook stock analysis.

NOTE: The opinions expressed in the article are solely those of the guest contributor and are not endorsed or shared by Amigobulls.

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