[BizHanKook] While major domestic entertainment companies generally reported solid performances for the third quarter of this year, their stock prices continue to remain weak. This is due to concerns over high dependence on core IP and uncertainty regarding the next generation of growth engines to succeed them. Ultimately, how quickly low-seniority and new IPs can grow to establish themselves as new pillars of earnings is emerging as the key variable that will determine the future rebound of entertainment stocks.
According to the Financial Supervisory Service's Data Analysis, Retrieval and Transfer System (DART) on the 12th, HYBE and JYP Entertainment both recorded their highest-ever quarterly revenue in the third quarter. HYBE reported revenue of 1.5257 trillion won and an operating profit of 188.5 billion won. Compared to the same period last year, revenue increased by 109.8%, and operating profit turned from a 42.2 billion won deficit to a surplus. JYP recorded revenue of 267.5 billion won and an operating profit of 48 billion won, an increase of 15.0% and 17.6%, respectively.
Core IPs, BTS and Stray Kids, respectively, played a significant role in the revenue growth of both companies. According to HYBE, BTS held 31 performances in 12 cities during their North American tour period and sold approximately 2 million pieces of MD (merchandise). Thanks to this, concert revenue recorded 726.8 billion won, a 196.7% increase compared to the same period last year when there was no full-group world tour. MD and licensing revenue also increased by 98.7% to 334.6 billion won.
At JYP, the expansion of Stray Kids' global activities led to an increase in revenue. Sales of their new album in Western markets increased significantly in the third quarter, and their appearance at South American festivals also contributed to the rise in performance revenue. In addition, sales of related products such as pop-up stores, fan meeting MD, and light sticks were also strong. As a result, album revenue increased by 18.2% year-on-year to 79.2 billion won, and MD revenue increased by 46.7% to 58.6 billion won. Performance revenue also increased by 138.4% to 26.4 billion won, marking the highest quarterly figure ever.
On the other hand, SM Entertainment and YG Entertainment saw their performance decline compared to the same period last year. SM recorded consolidated revenue of 291.1 billion won and an operating profit of 35.5 billion won in the third quarter. These figures were down 9.5% and 26.4%, respectively, compared to the same period last year. YG recorded revenue of 156.7 billion won and an operating profit of 13.5 billion won, down 9.4% and 56.8% year-on-year, respectively.
SM's decline in performance was influenced by the fact that major IPs focused on overseas activities rather than new album releases, and the number of large-scale performances with over 10,000 attendees decreased. For YG, initial operating costs for the BABYMONSTER world tour, venue rental fees in North America and Europe, long-distance transportation costs, and bad debt expenses related to MD acted as burdens. Profitability also decreased as costs were concentrated in the early stages of the tour and some costs were pre-reflected.
However, the market evaluates that there is no need to view these results negatively when considering the details. Despite the reduction in new album releases and large-scale concerts for major IPs, SM's MD and licensing revenue increased by 23.5% year-on-year to 62.1 billion won. Even without new album releases, YG recorded 43.9 billion won in concert revenue and 40.6 billion won in MD revenue. MD revenue was up 44% from the same period last year, marking a quarterly high.
Nevertheless, all four companies have been unable to avoid weak stock prices. As of the 11th, HYBE's stock price has fallen 55.9% compared to the beginning of the year, JYP 45.9%, SM 37.7%, and YG 36.9%. This contrasts with the KOSPI, which rose 24.7% during the same period. Although entertainment stocks rebounded together on the 12th, driven by strong earnings and expectations for the growth of low-seniority IPs, they are still underperforming compared to the start of the year.
The slowdown in the industry's growth rate and the concentration of market liquidity in semiconductors have affected the sluggishness of entertainment stocks. However, the market also cites uncertainty regarding growth engines as a major reason.
In the case of HYBE, while it possesses various IPs such as SEVENTEEN, ENHYPEN, and KATSEYE, there is no single group comparable to BTS yet. Although group and individual activities for BTS were foreshadowed after their world tour, a specific timeline for full-group album activities has not been disclosed. While low-seniority IPs like KATSEYE and CORTEZ are growing, the influence of existing core IPs, including BTS, remains significant in earnings.
JYP also relies heavily on existing key IPs such as TWICE and Stray Kids. As some members of TWICE have signed with different agencies for their individual activities, the schedule and frequency of future full-group activities have emerged as a variable. For Stray Kids, who led the third-quarter performance, the approaching military service dates of some members are considered a mid-to-long-term variable. Although low-seniority groups like NMIXX, NEXZ, and KickFlip are growing, the earnings gap with the existing main groups is still large.
SM is evaluated as having fewer artists who have successfully completed large-scale global tours or achieved distinct success in the North American market compared to other major entertainment companies. In this situation, as low-seniority IPs like RIIZE and NCT WISH are growing rapidly, future performance in the global market and the success of rookie artists are considered key tasks for securing new growth engines.
YG's core IP, BLACKPINK, still has a significant influence. Performance volatility could increase if full-group activities decrease due to members signing with different agencies for individual activities. While BABYMONSTER is increasing the scale of its performances, it is considered difficult to say that a new growth pillar has been sufficiently secured, as there are not many low-seniority IPs to support them.
Ultimately, market attention is focused on the growth of next-generation IPs that can reduce dependence on existing core IPs and create new pillars of earnings. In particular, how quickly low-seniority and new IPs contribute to revenue and profit is considered the key variable that will determine the future rebound of entertainment stocks.
An industry official said, "The recent stock price trends in the entertainment sector reflect not only earnings but also the market's assessment of the growth visibility and global expansion potential of next-generation IPs," adding, "Future corporate value will also be differentiated depending on each company's IP portfolio and growth strategy."
Major entertainment companies are also focusing on fostering low-seniority and new IPs as new pillars of earnings and expanding their influence in the global market to resolve concerns about slowing growth.
Based on its "multi-home, multi-genre" strategy, HYBE is expanding the global activities of low-seniority IPs like KATSEYE and CORTEZ. The strategy is to broaden their activity regions and fandoms to nurture them into new growth pillars. JYP is expanding tours and global activities for low-seniority IPs such as NMIXX, NEXZ, and KickFlip. Through NMIXX's first world tour and entry into Japan, NEXZ's overseas performances, and KickFlip's first tour, they aim to increase the earnings contribution of low-seniority groups.
As SM views RIIZE and NCT WISH as key IPs with future global tour competitiveness, they plan to increase performance scales while strengthening a balanced portfolio where stable results from existing legacy IPs harmonize with the growth of next-generation IPs. YG is also expanding the growth base of its artist portfolio by increasing the global activities of BABYMONSTER and TREASURE.
Preparations for new rookie groups are also underway. HYBE is preparing a new group targeting the global market. JYP is scheduled to officially debut its new boy group "oftheblue" on January 11 next year. SM is preparing a new boy group, SMTR25. YG is also preparing for the debut of a 5-member boy group and a 4-member girl group, aiming to expand its artist lineup by 2027.
Lee Hwan-wook, a researcher at Yuanta Securities, analyzed, "The depth of the low-seniority IP portfolio will determine earnings differentiation in 2027." Ultimately, how quickly existing low-seniority IPs can increase their earnings contribution through concerts, albums, and MD, and whether new IPs can settle into the global market and grow into another source of revenue, are expected to be the key variables that determine each company's mid-to-long-term growth and corporate value.