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Is LINE a bargain or blowout at $10 billion?

Attendees try Line Corp.'s new call service displayed on mobile phones at a news conference in Tokyo, Japan.
Junko Kimura-Matsumoto | Bloomberg | Getty Images
Attendees try Line Corp.'s new call service displayed on mobile phones at a news conference in Tokyo, Japan.

Japan's most popular messaging app filed for an initial public offering (IPO) in Tokyo, but whether the estimated $10 billion valuation is fair remains in question.

The messaging app, which reported first-quarter sales of 14.6 billion yen ($143 million), up threefold from a year earlier, earns revenue from advertising, selling stickers and gaming functions, as opposed to other messaging apps that earn revenue from one-off user charges.

LINE's valuation is fair, according to Ryan Huang, market strategist at IG, especially compared with competitors.

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"Coupled with the robust feature set compared to WhatsApp, and the monetization track record and possibilities, this looks like quite a bang for the buck next to WhatsApp's price tag," said Huang, who added that he thought LINE's valuation could be stretched to $20 billion.

LINE has around 480 million registered users, though its method of reporting 'registered' rather than 'active' users has drawn criticism from competitors. They argue that reporting monthly active user numbers is more credible, as registered users may have the app but don't use it.

By comparison, WhatsApp, which was bought by Facebook for $19 billion earlier this year, has 500 million monthly active users, China's WeChat has 396 million and Cyprus-headquartered Viber has 360 million.

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Other analysts told CNBC that LINE would be vastly under-priced at $10 billion.

"Our valuation is $19 billion," said David Gibson, senior research analyst at Macquarie bank.

"We don't think that [$10 billion] is indicative of the situation as often with filings – it's a notional amount that's mentioned that often relates to prior transactions that have occurred in the company. So we've seen that with other IPOs, often the filing number is low compared to the actual valuation," he added.

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Gibson says LINE is worth considerably more than $10 billion for several reasons, including huge growth potential given it has the largest user base outside of its home market among messaging apps.

Nearly 90 percent of LINE's user base lives outside of Japan; it has a strong presence in Thailand, Taiwan, as well as parts of Europe and Latin America.

Business in LINE's home market looks extremely lucrative with huge growth potential, Gibson said. The firm generates around 80 percent of its revenue in Japan, largely because it's the world's largest mobile gaming market.

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"LINE controls between 12 and 15 percent of Japan's games market and its business is growing. We estimate the app store in Japan is growing at a rate of 100 percent on year," he added.

But Gibson highlighted risks facing LINE and the messaging sector as whole.

"The obvious threat is competition, it's competing with social services likes of Facebook and Twitter, that may particularly do well – so it's not that easy," he said.

Privacy and regulatory issues could also threaten LINE's business, he added.

Correction: This version has been updated to reflect that 14.6 billion yen is around $143 million.