June 24, 2024

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CHICAGO, IL – AUGUST 3: (L-R) Danielle, Hyein, Hanni, Minji and Haerin of NewJeans perform during the Lollapalooza concert in Grant Park on August 3, 2023 in Chicago, IL.

Gary Miller | Movie Magic | Getty Images

It’s been a rocky start to the year for investors in the K-pop industry, as falling fourth-quarter sales and profits and a dating scandal hammered stock prices.

However, Goldman Sachs expressed optimism about the industry in a March 14 report, saying the K-pop industry was “misunderstood.”

Share prices of K-pop’s “big four” companies have all fallen since the start of the year. Shares of JYP Entertainment have plunged more than 37% so far this year, while YG Entertainment has fallen nearly 17%. South Korea’s Kospi-listed company Hybe, the parent company of superstar BTS, fell more modestly, about 4.5%.

SM Entertainment’s stock price plummeted more than 17%. The decline comes as one of the agency’s entertainers has drawn attention after being embroiled in a dating scandal. widely International and domestic Coverage.

In February, the stock fell for five consecutive sessions to its lowest level since October 2022 following the incident surrounding Karina, the captain of the girl group Aespa.sell off $50 million loss SM market value as a Chinese fan Threaten to boycott the band’s album.

Still, Goldman Sachs said there was “significant potential for a valuation re-rating” as companies continue to deliver multi-year earnings growth.By 2023, all four companies release higher annual income and net profit.

Excellent Valuation Metrics

Goldman Sachs said the sell-off was related to a market focused on album sales, which have historically been seen as a key metric for measuring fan base and a company’s prospects.

“We challenge the prevailing thinking that offline concert attendance… is the best indicator of K-pop’s growing influence,” the analysts wrote. Album sales may be affected by wallet share, they explained. A fan can purchase multiple albums – a common practice among K-pop fandoms.

Analysts also say album sales have surged during the pandemic due to a lack of offline interaction, skewing fan-related metrics.

Japan will drive short-term growth

In assessing the industry through live concert attendance, Goldman Sachs said “rapid growth has not stopped” and “in the near term, we view Japan’s audience growth as a key growth driver.”

Analysts believe K-pop companies will face huge fan base growth opportunities in Japan in the short term, “which we think the market is overlooking.”

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They pointed out that Japan has always been one of the largest overseas fan bases for K-pop music, with Hybe, SM and JYP collectively accounting for 7% of the Japanese live music market. Goldman Sachs pointed out that Japan’s top artist management company Johnny & Associates has been involved in a major scandal, causing the industry to become more favorable to K-pop artists.

In 2023, Japan’s largest music show “Kohaku Uta Battle” invited five K-pop artists and two localized groups produced by K-pop companies. This is the first time the show has featured a male K-pop artist since 2011 and the largest number of K-pop groups ever.

Goldman Sachs predicts that the compound annual growth rate of Japanese concert audiences will reach 24% from 2023 to 2026, with the combined share of Hybe, JYP and SM doubling from 7% to 14%.

Catalysts for growth in the Japanese market include SM’s latest Japanese boy group NCT Wish and JYP’s upcoming boy group NEXZ.

Global fan base

Goldman Sachs is also bullish on the growth of K-pop’s global fan base, especially in markets such as the United States

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The report noted the success of Hybe-managed girl group NewJeans in the US charts. In a March 27 report, analysts noted that NewJeans’ latest album debuted at No. 1 on the U.S. Billboard 200 chart.

The group is also the first Korean girl group to perform at Lollapalooza.this Chicago Sun-Times report The band may have succeeded in attracting their largest audience ever during the festival’s 5pm slot.

Le Sserafim, managed by Hybe subsidiary Source Music, also makes its Coachella debut on April 13, with another show scheduled for April 20.

Hybe also recently announced it will expand its partnership with Universal Music Group to include exclusive distribution rights for Hybe artists and labels. UMG members include Taylor Swift, Ariana Grande and Justin Bieber.

Goldman Sachs said the news was a clear sign that K-pop was becoming mainstream globally, gaining a competitive position that would give it greater bargaining power in business relationships.

The analysts concluded that the industry has “a long growth path ahead,” adding, “We believe further declines in wallet share appear limited, with wallet share normalizing to near pre-pandemic levels.”



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