JYP Entertainment’s boy group Stray Kids attended the 2024 Summer SBS Music Awards in Seoul. The group’s activity has led to a “significant rebound in profitability” for its parent company
Chosun Ilbo | Imazine | Getty Images
K-pop companies mostly continued to struggle in the third quarter of the year, with three of South Korea’s four major agencies reporting poorer financial results compared with last year.
The K-pop industry has been slowing due to declining album sales and the inactivity of record-breaking groups like Blackpink and BTS. BTS members have been doing compulsory military service, Blackpink just announced Reunite as a group in 2025.
streaming revenue, At least in the first half of this year, There was no way to make up for lost album sales.
Since the beginning of this year, the share prices of SM Entertainment, JYP Entertainment and YG Entertainment, which are listed on Kosdaq small-cap stocks, have fallen by 16%, 43% and 10.41% respectively, while the share price of Hybe, which is listed on the blue-chip Kospi, has also fallen. dropped by more than 11%.
Here’s how the “big four” K-pop companies fared in the third quarter:
Hybe, the largest K-pop music company by market value, did not elaborate on the reasons for its poor earnings, but Yuanta Securities analyst Hwan-wook Lee said in a report released on November 6 that due to limited artists and activities during the 2024 Olympics , sales shrank.
SM Entertainment Chief Financial Officer Jang Jeong Min said during the company’s earnings call that revenue fell due to lower album sales, while operating profit was also dragged down by debut program production costs and weak subsidiary profits.
Samsung Securities analysts Minha Choi and Yeonghoon Kang said in a Nov. 11 report that YG Entertainment’s operating losses were “not surprising” because the company’s artists are relatively “inactive.” In the third quarter, only newcomer group Babymonster and solo artist Lee Seunghoon released material.
A Nov. 14 report from NH Securities said JYP Entertainment was the industry’s only bright spot as it achieved a “significant rebound in profitability” and delivered an “earnings surprise.” The note said this was due to the “comprehensive” activities of boy band Stray Kids, which embarks on a world tour in the second half of 2024.
Is recovery in sight?
While K-pop investors may want to put 2024 behind them, they can look forward to 2025 given lackluster year-to-date stock returns and largely underwhelming financial results, research firm Citi Research said.
Citi analysts John Yu and Alicia Yap said in a report earlier this month that they were “constructive” on the sector as revenue growth will accelerate.
Citi predicts that the total revenue of the four major institutions will increase by more than 21% annually in 2025 and by nearly 15% in 2026.
Citi said the return of top groups BTS and Blackpink and improved fan platform monetization will help support revenue.
For example, DearU, an SM subsidiary in which JYP holds an 18.1% stake, Already tied up Partnered with Tencent Music to provide direct messaging services to users of Chinese music streaming platform QQ Music.
DearU is a fan communication platform known for its Bubble messaging service, which allows fans to pay a monthly subscription fee to receive exclusive messages from artists.
Hybe’s Weverse platform, which specializes in hosting artist content, also launched a new subscription membership model in December.
Citi analysts said the return of popular groups “will not only drive album and concert revenue, but should also improve ROI across multiple businesses. For example, the Fandom platform will see an increase in user traffic, as well as the rise of young artists in ( ) the same Labels can showcase opening acts at concerts by top artists.
FX tailwinds are also expected due to a weaker yen, with Citi expecting JYP to benefit the most due to its relatively high revenue exposure to Japan.
The company is more optimistic about Hybe and SM, although analysts said they prefer Hybe because of its balanced intellectual property portfolio rather than SM, which is more reliant on momentum in China due to the nationality of its artist lineup.
As for YG, they call it a “high incremental game” – which means the stock could fluctuate significantly with Blackpink’s return.
However, analysts are pessimistic about JYP and say the company will face challenges maintaining long-term growth as new artists strive to find success.
Citi’s optimism also echoes a report released earlier this year.
MarchGoldman Sachs says the K-pop space is “misunderstood”. At that time, Goldman Sachs believed that K-pop music companies should not be evaluated by album sales, but by offline concert audiences, and predicted that “there is great potential for valuation re-evaluation.”
Goldman Sachs said that K-pop companies have huge opportunities to grow their fan base in Japan in the short term, but they are also optimistic about the growth of their global fan base, especially in the United States.
The company said K-pop was becoming mainstream globally, with artists performing at major US music festivals such as Coachella and Lollapalooza – and that the industry “still has a long way to grow”.
Morgan Stanley A report earlier this year also wrote that K-pop is “on the verge of expanding its global fan base.”
“After more than 20 years of cultivating a loyal following in Asia, K-pop now looks ready to leap into the mainstream, creating investment opportunities in the process.”
