Prospectus Summary
PROSPECTUS SUMMARYOur Mission and Vision
Our mission is “Closing the Distance” by bringing people closer to each other as well as to a wide variety of information and services.
Our vision is to become the “smart portal” through which users can access the people, information, services, companies and brands that they choose, from anywhere they are and anytime they need to.
Overview
We are a leading global platform for mobile messaging and communication services, content distribution and advertising. Our mobile messaging application, which is the foundation of our LINE platform and operates on all major mobile operating systems, enables our users to communicate through free instant messaging and voice and video calls and serves as a smart portal to our other applications and services. We provide users with access to a wide range of social and interactive content and services that satisfy our users’ individual needs for access to information and entertainment such as mobile games and music through our “content platform,” as well as online-to-offline (“O2O”) services such as payment services and job posting, restaurant reservation and taxi booking services through our “life platform.” We believe that the integration on our LINE platform of content and services offers our users a convenient way to connect and have fun with their family and friends, explore and share their interests and satisfy their daily needs with greater ease, which we believe enriches the user experience and ultimately contributes to higher user loyalty.
Since the introduction of our mobile messaging application in Japan in June 2011, LINE has grown into a global platform with users in more than 230 countries and a strong user base in Asia. Our active user base has grown to 218 million monthly active users (“MAUs”) globally in March 2016, with 152 million MAUs located in our four largest markets of Japan, Taiwan, Thailand and Indonesia. We strive to localize our services to take into account cultural differences and user needs, and we currently provide our services in 19 languages. According to App Annie Inc. (“App Annie”), LINE was the fourth largest application publisher globally for the two years ended March 31, 2016, based on the number of downloads from the Social Networking category on iOS App Store and Social and Communication categories on Google Play, combined. We believe the scale and growth of our global user base provide us with powerful network effects, whereby LINE becomes more valuable to users, driving further user growth and engagement as well as attracting more advertisers and platform partners.
At the heart of our platform is the LINE mobile messaging application, which enables users to communicate with family, friends and other people they care about.
Our user engagement is driven by such communication being coupled with activities that are an indispensable part of users’ daily lives. LINE has evolved into an extensive platform that provides not only the ability to communicate but also access to a wide range of localized entertainment content and lifestyle services, such as games, video, music, camera and news applications through our content platform as well as O2O services through our life platform, offering our users richer experiences. With an increasing amount of activity on the internet being conducted through mobile applications, we believe that LINE provides a fast, versatile and user-friendly platform for the discovery of content and services in the mobile era. Our broad array of mobile services, combined with our large and highly engaged user base, gives us unique opportunities to offer greater personalization in terms of the service and content offerings by introducing a range of application settings.
We believe that our user base provides attractive marketing opportunities for our advertisers. We provide a variety of targeted and interactive marketing solutions that enable advertisers to promote their brands and amplify their visibility and reach. We offer a wide variety of “messenger ads” or user-initiated advertising solutions that are offered through the LINE messaging application, such as Official Accounts, Sponsored Stickers and LINE Point Ads, allowing advertisers to direct their efforts and communication in a more targeted manner. We also offer impression-based “performance ads” such as Timeline Ads and other advertisements that utilize our various communication and content offerings, allowing advertisers to effectively reach a larger number of LINE users. Our performance ads have become our fastest growing advertisement products.
We generate revenues in a variety of ways and from various participants active on the LINE platform. Our revenues are primarily generated from games, Stickers and advertising services on the LINE platform, as well as from advertising on our web portals. We generated revenues of ¥39,586 million in 2013, ¥86,366 million in 2014, ¥120,406 million in 2015 and ¥33,456 million in the first three months of 2016. For the two years ended March 31, 2016, according to App Annie, LINE ranked as the world’s largest mobile publisher based on non-game gross revenue from iOS App Store and Google Play, combined.
Our User Base
Since its launch in Japan in June 2011, our LINE messaging service has attracted users from around the world. Today, we believe LINE is the leading mobile messaging application in Japan, Taiwan and Thailand in terms of numbers of users, and we have gained substantial numbers of users in other parts of Asia, including Indonesia, Hong Kong, Singapore, Malaysia and Myanmar. In recent quarters, we focused our marketing efforts on our key countries as a part of our increased emphasis on monetization in markets where we have achieved leading market positions, which has led to an increase in our MAUs in our four key countries of Japan, Taiwan, Thailand and Indonesia as well as overall MAUs. We plan to continue to focus on areas in which we enjoy competitive advantages and to allocate resources effectively.
According to App Annie, for the three months ended March 31, 2016, our LINE messaging application was the largest mobile application in Japan, Taiwan and Thailand in terms of MAUs both on iOS App Store and on Google Play, and the second and third largest mobile application in Indonesia on iOS App Store and Google Play, respectively. In September 2015 our LINE messaging application had the largest share of the total time spent on smartphones in Japan, accounting for 10.4% of the total time spent on all mobile phone applications during the month, according to data released by The Nielsen Company (“Nielsen”) in November 2015.
Source: Nielsen Mobile NetView, Sep. 2015
Our Value Proposition for Our Users
Communicate with people you know in real life. We provide free mobile communication tools that allow our users to connect with their friends, family and others that they care about in a private and intimate way.
Choose the way you communicate. Our users can send instant messages to, or chat with, a friend while watching TV, call their colleagues while traveling on business, or enjoy video calls with their family members who are residing overseas. Our Timeline provides users with open access to, and the ability to share, a broad range of content with other users, and our low-cost voice over internet protocol (“VoIP”) service allows users to place calls to mobile and fixed phone lines.
Know that you have been heard. Our messaging tool provides the sender with confirmation whether their message has been read, and recipients are notified and reminded of unread messages specifically directed to them.
Be creative and expressive. We continue to be a pioneer and leader in the creation and design of Stickers. Users are able to colorfully express their emotions in the form of a single Sticker, which depicts LINE - developed characters or third-party characters or celebrities. Users can also design and distribute their own Stickers through our Creators Market service.
Discover attractive content. Our content platform introduces users to a host of highly appealing, localized content to enrich their daily lives, including games, news, music, video and more. The LINE characters we have created, such as Brown the Bear and Cony the Rabbit, are widely recognized within Japan, Taiwan, Thailand and Korea and are receiving increasing recognition in other regions of the world. In particular, our LINE Friends characters have recently become popular in China and Hong Kong, where we have established retail stores to leverage their popularity.
Share the fun. Users on our platform can share mobile games and other applications that they enjoy with their friends directly through a chat or by posting on their Timelines. For example, our users can see how their scores compare against their friends’ scores on their favorite games and send each other in-game purchased virtual items or pictures taken and decorated with Stickers on our camera application. Our LINE Music service enables users to share songs with their friends or add songs to their Timelines, bringing interaction to an otherwise isolated activity.
Enjoy one-stop access. Users are able to satisfy many of their mobile needs through our life platform, which provides seamless access and navigation across a wide range of applications and services that we provide. Through our smart portal, users in Japan, for example, are able to book taxis, make restaurant reservations, check job postings, get tailored news updates, purchase and read comic books and make individual and group calls. We believe that utilization of the LINE messaging application as a smart portal to the applications and services we offer on our life platform serves as an easy and convenient one-stop navigation path for mobile users.
Our Value Proposition for Our Advertisers and Business Partners
Large user base and high level of engagement. Our platform provides a powerful medium through which advertisers can reach our large user base, thereby amplifying their visibility. By integrating our advertising products with our messaging application, we allow advertisers to benefit from the high level of user engagement driven by communication, which has become indispensable to many people’s daily lives.
Impactful and targeted reach. We offer advertisers a variety of ways to connect with our users. We offer opt-in products such as Official Accounts, Sponsored Stickers, LINE@ and LINE Point Ads, which we call “messenger ads,” that allow advertisers to engage only those users who have voluntarily initiated such engagement, such as by adding an advertiser as a LINE friend, allowing advertisers to direct their efforts in a more targeted manner. In addition to these user-initiated advertising products, we offer targeted native mobile advertising across our content products such as Timeline, LINE News and LINE Live, which we call “performance ads” and which do not require users to opt in, allowing advertisers to effectively reach a larger number of LINE users.
Business solutions. The LINE platform provides business partners with solutions beyond simply an advertising medium. For example, Business Connect allows businesses to develop customized applications that can be offered on the LINE platform, and LINE@ enables small- and medium-sized enterprises (“SMEs”) to communicate with customers through LINE chat messages. We focus on developing new opportunities for our business partners to leverage the LINE platform and our user base.
Our Value Proposition for Our Platform Partners
Real relationship-based social distribution. Content providers on our platform, such as application developers, not only are able to utilize our social distribution platform but also benefit from our real relationship-based user base to maximize their distribution efforts. We believe that real relationship-based sharing of experiences enhances the legitimacy of user recommendations and amplifies the benefits of network effects.
Direct sales platform. Our content platform functions as a direct publishing platform for various content, including games, video, music and online comic books, which has contributed to LINE becoming a leading game publisher, as well as non-games content publisher, on iOS App Store and Google Play.
Proven distribution channel of scale. We provide content providers with access to our large and highly engaged global user base and the benefits of our continued expansion. For example, we distribute and maintain a line-up of quality games that are enjoyed by millions of users globally. As of March 31, 2016, our games exceeded a combined 654 million downloads, including 14 games that exceeded 10 million downloads each.
Online to Offline Integration. Our life platform provides traditionally offline service providers, such as taxi booking services, beauty salons, travel agencies and restaurants, the ability to appeal to more LINE users by offering aspects of their services online, increasing user engagement and convenience.
Our Market Opportunity
Mobile Messaging and Social Networking Opportunity
Mobile messaging and social networking are some of the most frequent activities of mobile internet users as they have emerged as a new means of connecting people online. For the two years ended March 31, 2016, according to App Annie, mobile messaging applications constituted four of the top ten applications excluding games based on the number of downloads from iOS App Store and Google Play, combined; two of the remaining six were social networking applications.
Advertising Market Opportunity
Digital advertising accounted for 20.1% of the total advertising market in Japan in 2015, which was lower than the corresponding percentages in each of the United States, China, the United Kingdom and Germany, according to International Data Corporation (“IDC”).
Source: IDC
From 2015 to 2020, the digital advertising markets in Taiwan, Thailand and Indonesia are projected to grow from $0.5 billion to $0.7 billion, from $0.3 billion to $0.5 billion and from $0.4 billion to $1.0 billion, respectively, according to IDC.
Mobile messaging and social networking platforms enable advertisers to execute highly targeted marketing initiatives and therefore are well-positioned to capture a greater share of advertising spending. The global mobile advertising market is projected to increase from $47.6 billion in 2015 to $173.6 billion in 2020, and the Asian mobile advertising market is projected to increase from $13.5 billion in 2015 to $55.6 billion in 2020 with the Japanese mobile advertising market projected to increase from $2.8 billion in 2015 to $5.3 billion in 2020, according to data released by IDC in April 2016.
Source: IDC
Content Market Opportunity
We believe that people are increasingly using mobile content to enrich their interpersonal relationships and social experiences. Consumer spending on paid content on mobile devices globally is projected to increase from $75.6 billion in 2015 to $256.0 billion in 2020, according to data released by IDC in April 2016.
Our business benefits from the size and growth of the content market in our four key countries of Japan, Taiwan, Thailand and Indonesia. According to App Annie, Japan was the world’s largest market in terms of the amount of revenue on iOS App Store and Google Play in 2015, combined. According to IDC, from 2015 to 2020, consumer spending on paid content on mobile devices is expected to grow at a compound annual growth rate (“CAGR”) of 3.3%, 16.4% and 29.9%, from $5.2 billion to $6.1 billion, from $2.6 billion to $5.5 billion and from $2.7 billion to $10.0 billion in Taiwan, Thailand and Indonesia, respectively.
Our Strategies
Continue to Grow Our User Base and Enhance User Engagement
We aim to continue to grow our user base with a strategic focus on Asia and markets where we believe we are uniquely positioned to attract new smartphone users and build a leading position. We aim to penetrate targeted markets by introducing localized services and products that appeal to the cultural tastes and differentiated demands of each region. In our largest market of Japan, we plan to commence operations as a Mobile Virtual Network Operator (“MVNO”) in order to promote the use of smartphones in Japan and further increase our potential user base.
We strive to offer services and products that users find useful, reliable and entertaining, in order to enrich the user experience and encourage engagement. We believe that the social and interactive features of our services and products are integral to achieving high levels of user engagement, and continue to develop services and products designed to allow users a broad range of expression and opportunities for interaction. We also continue to introduce a wide range of localized content and services that further encourage users to integrate LINE into their daily lives. For example, LINE Live, a real-time video streaming service, and LINE TV, an on-demand video service, provide information and entertainment catered to each region, and LINE Pay and LINE Points, our mobile payment service and rewards programs, enable users to further converge their online and offline activities using our platform.
Expand and Improve Our Platform for Users and Content Providers
Our LINE platform integrates mobile messaging services with a wide range of social and interactive content. We intend to build upon our strength in mobile messaging services to develop and broaden our spectrum of content offerings on our LINE platform as well as integrate offline services in order to further enrich the user experience. For example, we offer a variety of LINE Games, which are popular among casual game players, and plan to expand our game portfolio to include more immersive role-playing games in order to broaden our appeal to diverse user groups. We are also enabling more cross-application interactions, such as posting LINE Music tracks to a user’s Timeline and sending in-game items from LINE Games to other users. In addition to serving as a portal to other content, our LINE messaging application encourages closer, intimate relationships through free instant messaging combined with the use of fun, expressive Stickers.
Offer a Differentiated Marketing Platform for Advertisers
We continue to enhance and broaden the range of our advertising services and products in order to enhance the appeal of LINE as an advertising platform and ultimately attract more advertisers. We intend to strengthen our ability to utilize data analytics and other technologies in order to provide more targeted and interactive advertising solutions that enable advertisers to best promote their brands and products and amplify their visibility and reach. For example, we recently introduced Timeline Ads to allow advertisers to reach a larger number of LINE users by posting advertisements on users’ Timelines, and implemented a new advertisement distribution system based on Hike, a smartphone native advertising platform that utilizes demographic and interest based targeting and real-time bidding to optimize online advertising inventory. We intend to attract additional business partners by introducing new and more comprehensive business solutions, such as Business Connect and LINE@, that help business partners integrate their online and offline advertising to better reach and communicate with customers. For larger businesses, we plan to launch our Official Web App designed to seamlessly incorporate their existing web services with LINE and to allow them to connect with our users with greater ease through automatic login and personalized push notifications. For SMEs, which may have limited or no web service capability, we plan to launch our SME Partnership Program, which is designed to help SMEs achieve better results by engaging with LINE users through aggregation services they already use.
Further Monetize Our User Base and User Traffic
We constantly explore and pursue new opportunities to monetize our user base. We focus our monetization and underlying marketing efforts on markets and regions where we have achieved a leading position. We intend to enhance and develop our content offerings and marketing solutions designed to capture increased monetization opportunities across our platforms.
Pursue Strategic Investments and Alliances
To develop and expand an ecosystem around our LINE platform, we intend to pursue strategic investments, acquisitions and alliances, in order to grow our user base and engagement and to introduce complementary services and products outside of our current content offerings. We also plan to selectively partner with leading content providers and service providers where such partnership would enable us to deliver a range of high-quality services through our LINE platform, leveraging our brand recognition and strong positioning as the leading messaging application in our key markets. For example, we have established a joint venture with transcosmos inc., an outsourcing service provider in Japan, to offer our business accounts customer support solutions utilizing one-to-one LINE chats.
Summary Risk Factors
Our business is subject to numerous risks described in the section entitled “Risk Factors” and elsewhere in this prospectus. You should carefully consider these risks before making an investment. Some of these risks include:
Our History and Corporate Information
We were incorporated as a joint-stock corporation in Japan in September 2000. We began as an online game company and engaged in the development and distribution of online games under the Hangame brand. We subsequently expanded our business to portal services and acquired livedoor Co., Ltd., a Japanese internet portal company, in May 2010.
In June 2011, we launched the LINE messaging application to the public in Japan, followed by launches in other Asian countries. We initially focused on building our user base in Japan, but shortly afterwards began to actively conduct marketing efforts in other parts of Asia, where we believed there was significant market potential based on the relatively low level of smartphone penetration in a relatively large and growing population size. In order to more effectively pursue global expansion outside of Japan, we incorporated LINE Plus Corporation, which provides sales and marketing services for the LINE platform outside of Japan, in Korea in February 2013.