SoftBank unit to invest $4.7bn in Yahoo-Line integration

SoftBank Group affiliate Z Holdings on Monday announced plans to invest ¥500bn ($4.7bn) and hire 5,000 AI engineers over five years after completing a merger with popular messaging app Line.

By launching new services and creating synergies in businesses such as online advertising, the combined entity aims to generate ¥2tn in revenue and ¥225bn in operating profit by fiscal year 2023.

The business plan is Z Holdings’ most detailed strategy yet in countering the growing threat of GAFA — US tech giants Google, Amazon, Facebook and Apple — in Japan.

“On a global level, our gap with GAFA increased during the coronavirus,” Kentaro Kawabe, president and co-chief executive of Z Holdings, said during a news conference on March 1. “But inside Japan, our services are more popular.”

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The merger, which closed on March 1, creates a tech giant with more than 300m users across messaging, online news and financial services. The original target of October 2020 was pushed back due to pandemic-related delays in the regulatory approval process.

Under the new structure, SoftBank unit SoftBank Corp and South Korea’s Naver each own 50 per cent of Line — now renamed A Holdings — which in turn owns 65.3 per cent of Z Holdings. Z Holdings will remain listed on the Tokyo Stock Exchange and will own Line and Yahoo Japan, which runs a popular news site in Japan. It had a market capitalisation of ¥5.1tn as of March 1.

Observers are watching how the merged entity will streamline overlapping services such as online news and entertainment, as well as integrate financial services offered by SoftBank Group subsidiary PayPay, which runs a fast-growing mobile payment app in Japan.

Observers are watching how the new entity will streamline overlapping services such as news and entertainment, as well as integrate existing SoftBank financial services © Yuki Kohara

Z Holdings plans to integrate Line Pay, Line’s mobile wallet, into PayPay by April 2022, pending regulatory approval. Line Pay will continue its service outside Japan.

A new “product committee” led by Jung-Ho Shin, the creator of Line, will meet weekly to discuss integration of services. Three Line executives joined Z Holdings’ board of directors.

“How quickly they can create a sense of unity within the different brands will be key,” said Kazunori Ito, an analyst at Morningstar. “Building a more complete ecosystem by adding services like finance and shopping will enable [Z Holdings] to better generate revenue from each user.”

Successful integration will pose a threat to US tech giants like Google, Amazon and Facebook in Japan, as well as local ecommerce juggernaut Rakuten. For SoftBank, it is also key to creating another cash cow in Japan.

SoftBank’s telecommunications business in Japan has been a stable profit generator for years, but the industry is facing a fresh wave of price cuts due to pressure from Prime Minister Yoshihide Suga’s administration. Rakuten has also joined the competition by launching its own mobile network last year.

“Speed is key, since the delayed approval process gave Rakuten time to develop its mobile business,” Ito said.

The merger will also give Z Holdings a chance to tap into three overseas Asian markets where Line remains popular: Taiwan, Thailand and Indonesia. Due to a licensing agreement, Z Holdings was able to use the Yahoo brand only within Japan, in general.

A version of this article was first published by Nikkei Asia on March 1 2021. ©2021 Nikkei Inc. All rights reserved

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