AI Personalization And Revamped LINE Will Unlock Digital Opportunities

Key Takeaways

• Accelerating AI integration and commerce expansion is driving higher user engagement, digital monetization, and new revenue streams across media, messaging, and financial services platforms.
  
• Strategic investments in platform integration, technology, and international growth are supporting operational efficiency, deepening ecosystem synergies, and enabling greater returns to shareholders.
  
• Structural decline in traditional search ad revenue, rising costs, uncertain new initiatives, and domestic market risks threaten LY's revenue growth, margins, and long-term earnings stability.

Catalysts

Engages in the online advertising and e-commerce businesses in Japan.

• The company is accelerating the integration of AI-driven personalization across its media, commerce, and messaging services, leveraging its large user base to drive higher user engagement and expand advertising inventory-positioning LY to benefit from ongoing digitization and the global rise of personalized digital experiences; this is likely to drive both revenue growth and improved net margins as monetization per user increases.
  
• Strategic expansion of commerce through the phased LINE app revamp, including a new Shopping tab and AI-powered product recommendations, is expected to capture growing e-commerce demand in Japan, where online penetration remains low; this initiative is set to materially increase transaction values and advertising revenue over the next few years.
  
• The rapid rollout and scaling of LINE Mini Apps-having grown the number of apps and their usage by around 50% year-on-year-creates new monetization avenues (payment fees, in-app ads, digital content charges) and underpins sustainable medium
• to long-term top-line growth as user adoption and transaction frequency rise.
  
• Continued strong growth in the Strategic Business segment-particularly PayPay's payment/financial services expanding faster than the core payment user base, alongside upcoming integration into the LINE Wallet-enlarges the addressable market and provides a foundation for multi-year revenue and EBITDA growth as ecosystem synergies deepen.
  
• Ongoing investment in proprietary technology, platform integration, and international expansion (including new sales subsidiaries focused on SMBs and sector-specific verticals) lays the groundwork for higher operational efficiency, greater market share, and increased capital returns to shareholders via substantial share buybacks, all of which should support longer-term earnings growth and improved capital efficiency.

LY Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming LY's revenue will grow by 7.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.7% today to 8.8% in 3 years time.
• Analysts expect earnings to reach ¥208.9 billion (and earnings per share of ¥31.32) by about September 2028, up from ¥150.7 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ¥272.7 billion in earnings, and the most bearish expecting ¥167.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.6x on those 2028 earnings, up from 21.0x today. This future PE is lower than the current PE for the JP Interactive Media and Services industry at 23.0x.
• Analysts expect the number of shares outstanding to decline by 2.9% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.76%, as per the Simply Wall St company report.

LY Future Earnings Per Share Growth

Risks

• The ongoing structural decline in search advertising revenue-driven by reduced demand from major advertisers, changes in advertiser placement standards, and overall softness in the search ad market-poses a risk of sustained top-line pressure in LY's core Media segment, thus impacting consolidated revenue and possibly leading to longer-term earnings stagnation if alternate revenue streams don't scale rapidly.
  
• Elevated SG&A expenses, particularly persistent costs tied to integration of advertising platforms and significant ongoing investments in AI infrastructure, could continue to weigh on net margins in the Media and Commerce businesses, especially as the immediate top-line synergies from these projects are not expected to materialize until next fiscal year or later.
  
• The successful scaling and frequent use of new initiatives such as LINE Mini apps and revamped Shopping/Wallet tabs are not yet certain, as user frequency and monetary engagement for Mini apps still lags despite growth in the number of apps, raising the risk that anticipated new high-margin monetization streams may not meet management's ambitions, which would limit future revenue and margin expansion.
  
• Increasing competition and shifting advertiser preferences toward performance-based, social, and short-form video advertising formats could pressure LY's more traditional ad-driven media model, leaving it vulnerable to market share erosion and threatening future advertising revenue growth if LY cannot adapt quickly to new ad formats and ecosystem integration trends.
  
• Heavy exposure to domestic Japanese markets leaves LY vulnerable to local economic cyclicality and potential regulatory changes-especially as increasing costs for data privacy compliance and new platform regulation are expected-amplifying revenue volatility and potentially pressuring consolidated earnings stability over the long term.

Valuation

• The analysts have a consensus price target of ¥572.733 for LY based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ¥650.0, and the most bearish reporting a price target of just ¥350.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ¥2383.0 billion, earnings will come to ¥208.9 billion, and it would be trading on a PE ratio of 21.6x, assuming you use a discount rate of 7.8%.
• Given the current share price of ¥460.0, the analyst price target of ¥572.73 is 19.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.