Q4 New Album Sales Down 38%... SM Earnings Stagger

Operating Profit of 17.8 Billion Won, Half of Market Expectations

SM Entertainment, struggling under audit pressure from its parent company Kakao, has also encountered negative news from China. Its fourth-quarter performance last year is expected to fall short of market expectations. Meanwhile, HYBE, which lost to Kakao in the SM acquisition battle, is expected to post strong results despite the military enlistment setback of its main artist, BTS (Bangtan Sonyeondan).

According to the entertainment industry on the 6th, among the 'Big 4 (HYBE, YG, SM, JYP)', SM will be the first to announce its earnings on the 7th. HYBE is scheduled for the 26th.

Financial information firm FnGuide forecasted that SM would record sales and operating profit of 227.6 billion KRW and 17.8 billion KRW respectively in the fourth quarter of last year. These figures represent decreases of 12% and 21% year-on-year, with operating profit notably falling short of the market expectation of 33.6 billion KRW.

SM's sales decline is attributed to negative factors originating from China. In particular, the decrease in Chinese group-buying volumes led to album sales of aespa, which has a high proportion of Chinese fandom, falling below expectations. Album and concert revenues were also sluggish. In the fourth quarter, NCT 127 released their 5th full-length album and aespa released their 4th mini-album, each achieving sales exceeding one million copies. However, the total sales of new albums in the fourth quarter amounted to only 5.57 million copies, and concerts were limited to 20 shows. These figures represent decreases of 38% and 57% respectively compared to the previous quarter.

SM's low growth is causing headaches for its parent company Kakao as well. Despite enduring significant losses in competition with HYBE to barely succeed in acquiring SM, Kakao has yet to see a rebound in SM's stock price due to poor performance.

Recently, when Kakao launched an audit raising concerns about the investment appropriateness regarding SM's acquisitions of The Hub and TenX, speculation arose that this might be a prelude to management changes or company sale. In particular, SM expressed disappointment regarding the audit, stating, "There were considerable doubts and regrets about the scope and methods of the (audit) requests," further escalating tensions between the two companies.

On the other hand, HYBE is expected to further solidify its position as the leading entertainment company. HYBE's sales and operating profit for the last quarter are estimated at 640.2 billion KRW and 87.5 billion KRW respectively, marking increases of 20% and 72% year-on-year. Considering that BTS, which accounted for about 90% of sales, has all currently enlisted in the military, this is a fairly good performance.

The strategy of having members enlist sequentially to minimize the impact of BTS's military hiatus is regarded as effective. The diversification of the portfolio with artists like NewJeans, Seventeen, and Tomorrow X Together also contributed significantly.

Additionally, JYP is expected to report sales and operating profit of 152.3 billion KRW and 46.3 billion KRW respectively in the fourth quarter, representing increases of 32.20% and 80.16% year-on-year. This is attributed to the strong performances of ITZY and Stray Kids. YG is estimated to see sales and operating profit of 101.2 billion KRW and 8.4 billion KRW respectively in the fourth quarter, down 19.04% and 46.50% year-on-year. The failure to renew individual contracts of BLACKPINK members and the absence of major artist activities excluding BLACKPINK were painful setbacks.

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