Japanese messaging app Line is about to test Wall Street's appetite for tech IPOs this year, as the company prepares to go public Thursday. What many don't know is that the Tokyo-based chat app launched in 2011, following a catastrophic earthquake and tsunami in Japan, to be used in place of downed communications. Line amassed 50 million users in a little more than a year, while it took Facebook over three years to hit 58 million users.
The app's creator, NHN Japan, later announced a decision to spin off the messaging app into its own division, Line Corp., in 2013. Line is now a Japanese subsidiary of the South Korean internet search giant Naver, which first talked of taking the business public immediately following the spin off. The parent company halted its plans for Line to test the public markets in hopes of garnering stronger interest from investors. At that time, the idea of free chat apps was only beginning to catch on with smartphone users.
Naver currently owns 100 percent of Line's outstanding shares of capital stock, according to Line's latest filing with the SEC, and will control approximately 83.3 percent of stock following the IPO. Some analysts are saying this should be a red flag for investors, considering Line's board of directors is composed of many individuals with ties back to the Korean company.
"Japan and Korea don't always see eye to eye on business issues," founding partner of Palo Alto's CrossPacific Capital, Greg Tarr, said in an interview. There's some potential animosity there, Tarr said, because Line came into Japan, wiped out multiple telecom companies, and took a significant amount of money out of the country.
Tarr said "cronyism" among the executive officers and board members should also be a top concern for investors. "People from Naver who don't have the right background could be forced into Line," Tarr said. "Corporate governance is not up to speed here."