Can Line Revive The Global IPO Market?

The global IPO market is in its worst slump since the Financial Crisis. According to Bloomberg’s Tim Culpan, the next big Asian IPO, Line, could help to turn things around.

Last year, global IPOs raised $242 billion, down 20 percent from 2014. So far this year, the global IPO market has raised a total of $16.9 billion in Q1 and $23.4 billion in Q2. At that rate, IPO fundraising is on pace to fall by roughly two-thirds this year.

Line, which is planning a late-summer IPO in New York and Tokyo, is a Japanese company with a business centered on its messaging app. However, as Culpan pointed out, Line’s true value may be in its ability to generate revenue from its user base. The company’s use of animated characters, payments, games, timelines and corporate accounts has netted it an impressive stream of fee revenue.

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While Line’s customer base of 218 million users is impressive, it is also the primary weakness of the company. Critics are concerned about Line’s lack of diversity. Almost all of Line’s user base comes from Japan, Taiwan and Thailand.

Line is targeting a valuation that is roughly 40 percent below the value it had anticipated when it first filed for an IPO in 2014. This heavy discount may be reassuring to investors who have been burned on other large Asian IPOs in 2016.

The three largest Hong Kong IPOs of 2016 are all currently down from their IPO prices.

So far in 2016 the Renaissance IPO ETF IPO is down 6.9 percent while the SPDR S&P 500 ETF Trust SPY is up 1.7 percent.

Disclosure: The author holds no position in the stocks mentioned.