Scandals and Poor Performance... The Endless Downward Spiral of Entertainment Stocks

Four Major Entertainment Companies' Stock Prices Down 30-50% Compared to Last Year
Stocks Fall Sharply Due to Poor Q2 Earnings
"High Possibility of Rebound in Second Half"

Entertainment stocks have fallen to near their lowest levels of the year. This is interpreted as being influenced by ongoing concerns over a peak out (passing the peak) in album sales combined with poor earnings performance.

According to the Korea Exchange on the 16th, HYBE's stock price recorded 163,100 KRW on the previous trading day, the 14th. This is the lowest closing price of the year and a 30.15% drop compared to the end of last year. During the same period, SM fell 29.53% to 64,900 KRW, and YG Entertainment and JYP Ent. also dropped 31.83% and 50.35%, respectively. Most stocks were pushed down to near their yearly lows.

The biggest cause of this decline is attributed to poor second-quarter earnings. Minyoung Kim, a researcher at Meritz Securities, said, "After explosive album sales growth in 2023, concerns about a peak out, highlighted risks related to multi-labels, and increased market fatigue have caused the four major entertainment companies' stock prices to decline compared to the beginning of the year. In the first half, various costs such as weak artist activities and increased production costs occurred, leading to continuous downward revisions of operating profit consensus (average securities firm forecasts)."

Among entertainment companies, JYP Ent. suffered the biggest earnings shock. On the 13th of this month, JYP Ent. announced its second-quarter earnings. Revenue was 95.7 billion KRW, and operating profit was 9.3 billion KRW, down 36.9% and 79.5%, respectively, compared to the same period last year. The market viewed the results as an 'earnings shock' as they fell short of expectations. Especially after the earnings release, 12 securities firms issued reports, of which 9 lowered their target prices. Hyunji Lee, a researcher at Eugene Investment & Securities, explained, "In the absence of artist activities, including 5 billion KRW in manufacturing costs for JYP360 and 9 billion KRW in other costs, the cost increase relative to scale expanded, resulting in poor earnings."

YG Entertainment, which announced its earnings earlier, showed a similar trend. On a consolidated basis, second-quarter revenue was 90 billion KRW, down 43.1% year-on-year, and operating profit turned to a loss, recording an operating loss of 11 billion KRW. Hwanwook Lee, a researcher at Yuanta Securities, said, "Despite activities of key artists, negative growth was inevitable due to the high base effect from the previous year. The decline in operating profit was more pronounced due to profit and loss deterioration from low-experience intellectual property (IP) activities and increased investment expenses."

[Image source=Yonhap News]

HYBE's stock price is also weighed down by earnings as well as scandals involving BTS member SUGA's drunk driving and Chairman Bang Si-hyuk. HYBE recorded 640.5 billion KRW in second-quarter revenue, a 3.1% increase year-on-year, but operating profit fell 37.4% to 50.9 billion KRW. Hyunyong Kim, a researcher at Hyundai Motor Securities, explained, "Revenue exceeded expectations, but operating profit fell short. This is presumed to be due to higher-than-expected debut costs for Cats Eye and marketing expenses for new game releases."

However, securities firms evaluated that entertainment stocks are likely to improve earnings from the second half of the year. It is expected that the emergence of rookie artists and global strategies will be highlighted in the second half. Researcher Minyoung Kim emphasized, "Earnings were weak due to the high base in 2023, absence of major IPs, and increased costs from launching new IPs and new businesses. From the second half, it is time to focus on upcoming momentum such as launching rookie IPs and increasing activities of global localized groups rather than short-term earnings weakness."

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