Entertainment Triad Riding the Tailwind of Improved Earnings Performance

[Asia Economy Reporter Minji Lee] The three major entertainment companies (JYP, SM, YG Entertainment) are showing strong performance in the stock market, driven by improved earnings.

On the 23rd, SM's stock price surged about 32% from 30,200 KRW at the beginning of the year to 40,000 KRW as of the 21st. YG Entertainment and JYP also showed an increase of about 16%. The stock prices rose vertically as foreign and institutional investors continued a buying spree following better-than-expected strong earnings. Foreign and institutional investors purchased JYP stocks worth 84 billion KRW, while SM and YG bought stocks worth 53 billion KRW and 44 billion KRW, respectively.

Last year, the prolonged COVID-19 situation led to a decline in offline performances, which accounted for a large portion of sales, dragging down earnings. However, sales related to music streaming and content significantly increased, resulting in larger profits in the first quarter. JYP Entertainment recorded an operating profit of 13.8 billion KRW in Q1, exceeding market expectations (8.4 billion KRW) by about 64%. Overseas music sales increased by 141% due to a music supply contract in China, and margins expanded with increased YouTube revenue. YG Entertainment turned a profit with an operating profit of 9.5 billion KRW, surpassing market expectations (5.2 billion KRW) by about 80%. Digital content sales reached 23 billion KRW, marking the largest scale since 2017. SM recorded an operating profit of 15.3 billion KRW in Q1, greatly exceeding market expectations (3.3 billion KRW). The Chinese subsidiary, which had been in deficit, returned to profitability, and the expansion of the fan community ‘DearU’ positively contributed.

With the upward trend in earnings, album sales are expected to increase due to the activities of key artists, and the expansion of fan platforms is predicted to significantly boost the annual operating profits of all three entertainment companies. YG Entertainment is expected to show a full-scale earnings improvement from the second half of the year. When Treasure, BLACKPINK, and BIGBANG make their comebacks, operating profit is projected to reach 37 billion KRW, a 240% increase compared to the previous year. SM is expected to see annual operating profits increase by 90% year-on-year to 6 billion KRW, supported by the rapid growth of DearU and strong album sales from artists including NCT. JYP is also expected to see increased album sales starting from Q2 with comebacks from DAY6, NiziU, Stray Kids, and 2PM.

Ji Inhae, a researcher at Hanwha Investment & Securities, explained, "The supply and demand for entertainment stocks have been concentrated on HYBE, which is listed on the KOSPI, causing the stock prices to remain weak. However, when COVID-19 eases in the future, the resumption of offline performances is expected to benefit the industry."

This content was produced with the assistance of AI translation services.