Please ensure Javascript is enabled for purposes of website accessibility

Here's Why Shares of Line Corp. Took a Hit Today

By Bradley Seth McNew – Updated Apr 26, 2017 at 5:44PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Japanese messaging company's Q1 sales and earnings jumped -- but perhaps not quite high enough.

What happened

Shares of the Japanese messaging and increasingly social media-like company Line Corp. (LN) took a hit today, falling nearly 12% at one point today, even though the company reported a strong rise in sales for its first quarter and positive results from its new features. 

So what

For the the first-quarter results announced today, Line revenue increased more than 16% year over year to about $350 million (38.9 billion Japanese yen) thanks to increased video ads and from other features like paid messaging stickers that users can download from the Line Store. However, the company's operating income actually decreased nearly 25% as the company continues to invest in new lines of business and development of its app features. This is a sharp turnaround after the company reported a full 275% growth in operating income year over year for the same period last year. 

An advertisement for the Line store that has helped to increase the company's revenue.

Image source: Line Corp. 

Now what

Investors have been aware of Line's heavy investment strategy, but it seems that before today's announcement, the stock's valuation may have just gotten a little ahead of itself, which contributed to today's drop. Still, there were many positives in today's earnings release, including that monthly active users within Line's four countries of focus  -- Japan, Taiwan, Indonesia, and Thailand -- grew nearly 13% year over year, with 72% of those users being daily active users.

Additionally, Line has seen early success with its new "Line News" feature and "Line Works" business communication feature that sets itself up as a competitor to the popular Slack messaging app. "Line Pay," similar to other mobile wallet apps, has now reached more than 10 million registered accounts, which could provide another revenue growth feature as that grows in the quarters to come. 

Seth McNew has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.