Market expectations for the growth potential of all four major K-pop agencies—HYBE, SM Entertainment, JYP Entertainment, and YG Entertainment—have weakened, leaving entertainment stocks struggling to recover for nearly a year. Investors are taking a more cautious view of whether these companies can maintain revenue from their established major artists while also producing new acts capable of replacing them.
As of the closing bell on November 6, HYBE shares rose 1.59% from the previous day’s close, while SM Entertainment shares fell 0.51%. The day before, the two companies had posted rebounds of more than 6% and 8%, respectively. However, on November 4, their shares plunged 12.4% and 9.0% at the close. Such sharp swings highlight the stocks’ high volatility. HYBE even hit a one-year intraday low of 136,500 won on November 4.
Third-quarter earnings announcements triggered the volatility. HYBE’s revenue and operating profit for the third quarter of this year appeared to be record highs on the surface. However, its net profit fell by nearly 90% compared with the previous quarter, dampening investor sentiment. The decline was largely attributed to the falling exchange rate, which reduced the value of HYBE’s foreign-currency holdings when converted into Korean won.
With the won strengthening against the US dollar, the risk of foreign-exchange losses has become a reality, adding pressure to the stock. SM Entertainment also reported lower revenue and operating profit compared with the third quarter of last year, while its net income swung to a loss of 1.1 billion won. The company attributed its weaker performance to reduced album-related activities as artists focused on concerts and tours.
The longer-term picture makes the downward trend even more apparent. Shares of the four major entertainment companies have been declining throughout the past year, underperforming the broader market. HYBE’s stock has fallen steadily since February, while YG Entertainment and SM Entertainment have been on a downward trajectory since August last year. JYP Entertainment’s decline began in November last year. Comparing each company’s previous peak with its November 6 closing price, the losses range from approximately 50% to 60%.
The biggest concern is the weakening outlook for future earnings. HYBE’s shares have fallen more than 64% since February, when news of BTS’ comeback emerged. This has fueled concerns that the company may have reached its peak. Investors are increasingly worried that HYBE has no clear successor capable of matching BTS’ influence. Although the company has a diverse portfolio of major intellectual properties, including SEVENTEEN, ENHYPEN, and KATSEYE, producing another group with the same global impact as BTS will not be easy. Another source of uncertainty is when BTS will release a new full-group album, especially as the group is scheduled to continue its world tour through March next year.
Securities firms are also lowering their expectations. Samsung Securities cut its target price for HYBE to 235,000 won, approximately 16% below its previous target of 280,000 won. Hana Securities lowered its target from 300,000 won to 270,000 won, a 10% reduction. Back in January, Samsung Securities and Hana Securities had set HYBE’s target prices at 410,000 won and 440,000 won, respectively.
JYP Entertainment and YG Entertainment are facing similar challenges. JYP’s two flagship acts, TWICE and Stray Kids, are both expected to experience gaps in their future activities. TWICE is approaching a contract renewal period, and members Jeongyeon, Chaeyoung, and Jihyo have left the company to pursue individual activities. As a result, the group’s full-member activities may not continue in the same way as before. Meanwhile, some Stray Kids members are approaching mandatory military enlistment, with most of the group expected to enlist within the next five years.
YG Entertainment, meanwhile, has no artist with an influence comparable to that of BLACKPINK. The timing of the group’s next full-member comeback also remains uncertain. Since completing their world tour in January, the members have continued to focus on solo activities. However, because each member is represented by a different agency, revenue from their individual projects does not contribute to YG’s earnings.
SM Entertainment is also viewed as having relatively fewer individual artists with the same level of influence as the major groups at rival agencies. The popularity of its flagship acts, including NCT 127 and aespa, appears to be concentrated primarily in Asian markets. Their recent ticket sales in North America have also fallen short of expectations, leaving them far behind the North American touring power demonstrated by artists such as BTS, BLACKPINK, and Stray Kids.
To address concerns about slowing growth in the entertainment industry, major agencies are seeking to expand into new markets. During its earnings presentation on November 4, HYBE said it plans to develop more localized groups in Southeast Asia, following a model similar to KATSEYE. HYBE CEO Lee Jae-sang stated, “We have made considerable efforts to hedge our business against its dependence on BTS.” He added, “The growth of local artists in Southeast Asia signals that HYBE needs to establish local production bases in the region.”
SM Entertainment has also announced plans to actively pursue expansion into new markets and build a more balanced artist portfolio.
Sources: Tenasia