South Korean Internet giant Naver announced quarterly results that fell short of expectations because of weaker performance from the gaming unit of its messaging app Line. This echoes problems faced by Tencent’s WeChat, one of Line’s main rivals, and shows that messaging apps need to find more sources of revenue beyond games.
Naver’s 4Q2014 net income was 134.5 billion won, a 149 percent increase year-over-year, but that missed analysts’ expectations for net income of 163.2 billion won.
Its net profit for 2014 fell 75.9 percent from the previous year to 456.6 billion won, though its annual operating profit managed to grow 50.1 percent to 760.4 billion won.
Line, which is currently Naver’s most important source of revenue, grew its 4Q2014 revenue 62 percent year-over-year to 221.7 billion won, but that was still short of analysts’ targets, thanks to slowing sales from Line Rangers, one of its top game titles.
Games currently account for 60 percent of Line’s gross sales and it plans to expand its library to include role-playing games targeted at mid-core users this year, but the messaging app has been busy looking for other ways to make money. For example, it recently added Line Pay, a mobile payments feature, to the app, while Japanese users also have access to food delivery and taxi-calling services.
In Line Corporation’s (the Naver subsidiary that runs Line) earnings release, CEO Akira Morikawa stated that the messaging app wants to transform into a “life and entertainment platform” instead of just being a communication tool.
“Aspiring to become a platform for everyday life for all users through both current and new businesses, LINE plans to develop a variety of business models, establish new paths for growth, and increase the convenience provided to its users faster and on a larger scale in the future,” he said.
This will probably be one of Morikawa’s last announcements as CEO of Line, because the corporation recently announced that COO Takeshi Idezawa will take over the position. Idezawa had previously advocated for Line to go public, but the fact that it hasn’t held an IPO yet may show that Line wants to grow its international user base before listing.
Line revealed today that its current monthly active user count is 181 million. It is currently the top messaging app in Japan, Taiwan, and Thailand, but overall its user base lags behind WeChat, which has 468 million users, and WhatsApp, with 700 million users. Line said that it plans to increase its foothold in growth markets like Indonesia, the Philippines, Columbia, and Mexico, as well as the U.S.
Line’s plan to turn itself into a platform for a wide range of services parallels Tencent’s plans for WeChat, which now lets users call taxis and make online payments through the app in China. Like Naver, Tencent recently issued a disappointing earnings report thanks to slowing revenue from mobile gaming, which generates more than half of its sales. WeChat has also struggled to expand internationally even though it is the top performer in its domestic market, and it’s also hoping to grab more users in markets like Indonesia.
While Asian messaging apps, including WeChat and Line, serve as inspiration for their Western counterparts in terms of how to make money, their current struggles underscore the importance of diversifying sources of revenue instead of relying on just one vertical.