K-pop stocks are rapidly bouncing back from pandemic lows as investors are increasingly buying the stocks on the rosy outlook for further expansion of K-pop fandoms and new business models.
The nation’s top three labels — S.M. Entertainment, YG Entertainment and JYP Entertainment — are leading the upbeat mood, while excitement is also building up for Big Hit Entertainment’s planned stock debut possibly later this year.
Their stocks suffered their worst fall in March when concerts and tours — key sources of profits — were canceled or postponed amid the coronavirus pandemic. But in recent weeks the prices have almost doubled, recovering nearly all of the pandemic losses.
“Albums are seriously selling a bit too much this year,” said Lee Ki-hoon, an analyst at Hana Financial Investment and Securities, citing record sales of K-pop albums this year.
“K-pop’s growing popularity overseas, especially in North America and Europe, is driving up the overall sales as well as bulk-buying among organized fandoms.”
According to Gaon Chart, the nation’s top 100 albums — all from K-pop bands or soloists — sold 16.89 million copies in the first half of this year, about 50 percent jump from last year. The top 10 album sales alone exceeded 10 million copies, including five million-sellers — BTS, Seventeen, Baekhyun, NCT 127 and IZ*ONE.
Pandemic losses recovered
S.M., the largest among the three listed firms in terms of revenue, saw its share price soar from 16,350 won ($13.70) on March 27 to 30,400 won at Wednesday’s close.
Its partnership with Naver, in particular, was received positively in the market. Their virtual concert series “Beyond Live” have so far reaped around 13.2 billion won in ticket sales and over 400,000 viewers since the launch on April 26.
Naver is also reportedly seeking to acquire an estimated 100 billion won of S.M. shares. If everything proceeds as planned, it could further boost the label’s valuation.
“More opportunities are expected to come for S.M. to join hands with local and global platform operators. Increased album sales and new concert models (Beyond Live) also affect its valuation positively,” said Nam Hyo-ji, an analyst at KTB Investment and Securities.
YG, hit hard by last year’s drug and sex bribery scandal, enjoyed the biggest jump among the top three over the past months largely on the strong comeback of Blackpink.
The share hit a 52-week high of 42,520 won last month upon the release of the band’s new single “How You Like That” on June 26. The stock closed at 40,400 won on Wednesday, more than doubled from March.
Analysts say YG shares could get another boost when Blackpink releases its first full-length album in October, along with the much-anticipated debut of boy band Treasure next week, the label’s first debut in four years.
“With the flow of new music, if the pandemic eases and Korea’s relations with China improves, of which we had seen some hopeful signs, we can expect to see historic share prices of YG,” Lee, the Hana analyst added.
Back in 2017, YG, which had been pouring resources into the burgeoning Chinese market, was one of the hardest-hit K-pop labels by Seoul’s diplomatic row with Beijing over the deployment of a US missile shield here.
JYP’s shares have also surged, with its market cap exceeding 1 trillion won just last week to outpace the valuation of its crosstown rivals S.M. and YG.
The reason behind the stunning growth is undoubtedly its new Japanese girl group NiziU. On the day of the band’s pre-debut single’s release last month, the share soared more than 10 percent.
JYP, which has already seen a huge success in Japan with Twice, is expected to continue to make a big push in the neighboring country that makes up almost 60 percent of K-pop export.
“JYP has proved the business potential of exporting the unique K-pop training system to overseas,” said Ji In-hae, an analyst at Hanwha Asset Management.
“In whatever country with however singer, making a profit in a year is almost impossible especially amid the ongoing pandemic.”
New boon for expansion
It’s not to say all short-term risks are gone for K-pop stocks; cancellation of world tours would likely lead to temporary sluggish growth in profits and uncertainty always exists in a people-intensive business. But many analysts are hopeful on the future of K-pop business, calling Big Hit’s IPO a new boon for growth.
Big Hit, the label behind global sensation BTS, recorded 98.7 billion won in operating profit last year, outpacing those of the three listed rivals. Its IPO valuation is estimated to be priced at 4 trillion won to 6 trillion won, despite some overpricing concerns.
BTS, the biggest boy band in history, may be making up much of the profits, but the label has acquired several smaller labels in recent years including Pledis Entertainment and Source Music, as part of efforts to diversify profit sources as well as planning to debut new groups.
“Except for the repercussions from the pandemic, everything else has been going well and even better than before in the K-pop industry,” said Ji.
“When Big Hit goes public, at a reasonable price, it won’t take away all the pieces of the pie as some might fear but rather expand the pie’s size.”