Naver challenged by Facebook

February 27, 2014 Leave a comment

2014-02-21 16:01

Naver challenged by Facebook

By Kim Yoo-chul
Facebook is likely to stand in the way of Naver’s attempt to become a major force in the global mobile messenger market because the U.S. firm’s buyout of WhatsApp is expected to limit the global expansion of its messaging app Line.
The concern arose after U.S. SNS giant Facebook Thursday announced its decision to purchase the rapidly growing messaging startup WhatsApp for $19 billion.
WhatsApp is the largest free messenger service provider in the North American region with a user base of 450 million.
Naver has been betting on Line to ensure future growth and its reliance on the business is growing, meaning that if Line loses growth momentum, it is highly probable that Naver will be impacted due to a lack of an alternate growth engine.
Naver is Korea’s dominant web portal. Line has become its biggest cash-cow with the total number of users exceeding 340 million thanks to explosive additions in Asia, Latin America and Europe. Line is now seeking to expand its presence in North America.
Market experts said that the buyout is not likely to affect Line business in the short-term but it is possible that it will have a negative effect on Naver’s long-term globalization strategy.
“As WhatsApp is competitive in North America and Europe, the two markets that Naver is keeping a close watch on, concerns are high that Naver will face a dilemma in growth momentum abroad,” said Choi Yoon-mi at ShinYoung Securities.
Choi added growth curve for customers using WhatsApp chat program is much steeper than that of Naver Line.
Naver posted sales of 2.3 trillion won last year, an increase of 28.5 percent from the previous year with Line business generating 454 billion won in revenue, a seven-fold increase year-on-year.
Naver downplayed the concerns over WhatsApp, saying that it has started analyzing the effects of the deal.
Facebook is falling behind in mobile phone messaging apps in emerging markets, where many are using the Internet on growing 3G networks for the first time on mobile devices, said analysts.
“We’ve analyzed all possible scenarios over the effects of the Facebook-WhatsApp deal. Basically, this is no surprise. It’s cautious to say; however, the effects about the deal for us will be limited as our application business is diversified,” said an official at Naver by telephone, Friday.
Analysts said that the Facebook-WhatsApp deal may freeze Naver’s ongoing bullish moves for Line’s global expansion as the deal will trigger more competition between other free messaging application services.
They said that diversification is a key differentiating factor for the Korean web portal that can offset concerns over the Facebook-WhatsApp deal.
“In the long-term, competition will be getting fiercer in the global social network service industry, hurting profit margins of the industry’s major players,” said Samsung Securities analyst Park Jae-seok.
“However, if WhatsApp sticks to continue an existing chat messaging service business model just like what it said after the announcement, then Naver is looking safe to expand its global share powered by rich content and applied services,” he added.
WhatsApp is available on a host of platforms including Apple’s iOS and Google Android and acts as an alternative SMS service. WhatsApp has over 450 million users and boasts a higher level of engagement than Facebook.
WhatsApp’s users are expected to reach 1 billion by 2015 as the chat program’s users are more active and the chat program is much stronger than Facebook Messenger in Europe, Latin America, Africa and Australia.
“Facebook is attempting to integrate the startup’s technology into Facebook’s own messenger client, which recently gained SMS-style phone number-based messaging,” said another official at Naver.

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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