Line merchandise isn’t limited to the company’s own retail outlets. It can be found in ordinary convenience stores too. In Hong Kong, one block from Quartz’s local office, you can purchase packs of toilet paper featuring Sally and Moon.

Image for article titled Line’s $1.3 billion IPO shows cuteness is the new killer app
Image: Quartz

What’s most startling is how Line’s characters have endured since 2011, apparently getting more popular all the time.

Offline, Line could market its characters to any business that wants to use them. Restaurants, theme parks, apparel companies, and entertainment studios may hand Line money in exchange for the rights to use Cony and Brown on merchandise and media. This is how Sanrio, creator of Hello Kitty, makes money. In 2015, the company made $656 million in revenue, with much of that coming from licensing deals.

Online, Line’s instantly recognizable characters help ensure that its new apps get noticed—and downloaded. The company enjoyed modest success with two game titles bearing its mascots. Data from App Annie shows that Line Rangers, an adventure game, held steady as one of the top 100 most-downloaded games in Japan and Taiwan throughout 2014, and Line Pop, a Candy Crush-esque puzzler, did the same in 2013.

It’s possible the company could enjoy even more success if it follows the route Nintendo took with Pokemon Go and licenses out the characters to a skilled game maker, splitting the money that comes in.

At the moment, licensing makes up a small but growing portion of Line’s revenue. On its prospectus (p. 77), the company classifies its merchandise licensing business as part of an “Other” category that grew from 1.7% of Line’s total revenue in 2013 to 5% in 2015.

“Line Advertising,” which includes licensing its characters to businesses to make branded sticker sets (for example, Cony holding a Big Mac) grew from 13.4% of Line’s total revenues to 22% throughout the same period. Tellingly, these are the only segments of Line’s income that are growing.

As competition from Facebook intensifies and the well of new messaging users dries up, Line will have to find new ways to make money and keep growing. Investors should keep their eyes on the bears and the rabbits.

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