Japan’s Line lines up for large IPO

Line, a maker of a popular mobile messaging system used largely in Japan, Friday filed to sell shares to the public in what’s expected to be the largest global deal since Alibaba.

The company, which makes a system that allows consumers to send messages to each other without subscribing to costly texting plans, aims to sell 35 million shares. The deal is expected to fetch as much as $1 billion, says Kathleen Smith, manager of exchange-traded funds that invest in initial public offerings at Renaissance Capital. That’s the biggest global deal since Chinese e-commerce site Alibaba raised more than $20 billion in its September 2014 IPO, Smith says.

“This will be a test of the market appetite for tech IPOs,” Smith says. The shares are expected to trade both in Japan and in the U.S. on the New York Stock Exchange under the symbol LN. In a filing with the Securities and Exchange Commission, Line says it plans to sell as much as 35 million shares at $26.30 a share.

Line is one of a cadre of messaging apps that are designed to allow consumers to use data plans — rather than the short messaging systems (SMS) sold by wireless carriers — to send text notes, photos and emojis. Line competes with Facebook’s (FB) Messenger app and also its WhatsApp service, Tencent’s WeChat, which is mostly popular in China and Microsoft’s (MSFT) Skype. Japan has gravitated to Line due to high pricing on SMS plans in addition to highly customizable icons that allow users to visually express their mood, hobbies or other interests to friends. Line is owned by South Korea’s Naver Corp.

Line says it has 218 million monthly active users, with 70% of those being in Japan, Taiwan, Thailand and Indonesia. WhatsApp says it has one billion users and WeChat says it has 700 million active users.

The role of messaging apps could be greatly expanded as mobile users grow tired of downloading multiple apps to their phones, and instead look to get more functionality from apps they have already downloaded. Both Microsoft and Facebook are leading with new “bot” technology that would allow users to interact with vendors through messaging apps. Microsoft, for instance, demonstrated how users can order a pizza from Domino’s (DPZ) using artificial intelligence connected with Skype. Line has added functions that allow consumers to book taxi services and place restaurant reservations through the system.

There are risks. Line continues to lose money. Line reported $298 million in revenue during the first three months of 2016 and posted a loss of $2 million during the period. Line’s IPO also comes at a time when tech stocks have been losing their leadership position. The Technology Select Sector SPDR Fund (XLK) is up 2.7% this year – in line with the market but trailing the 17% rise in utilities stocks and 12.4% jump in energy.

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