CHICAGO, ILLINOIS – AUGUST 3: (L-R) Daniel, Hyein, Hannie, Minji and Haerin of NewJeans perform in concert during Lollapalooza at Grant Park on August 3, 2023 in Chicago, Illinois.
Gary Miller | Cinema magic | Getty Images
It’s been a rocky start to the year for investors in the K-pop sector, as lower fourth-quarter sales and profits and dating scandals weighed on stock prices.
Goldman Sachs, however, expressed optimism about the industry in a March 14 report, saying the K-pop sector is “misunderstood.”
Shares of the Big Four K-pop companies have fallen since the start of the year. JYP Entertainment shares are down more than 37% year to date, while YG Entertainment shares are down nearly 17%. Kospi-listed Hybe, home of superstar BTS, fell about 4.5%.
SM Entertainment shares fell more than 17%. The downturn came as one of the agency’s artists was embroiled in a dating scandal that attracted widely spread International And domesticated coating.
The stock fell for five straight sessions in February to its lowest level since October 2022 following drama surrounding Karina, the leader of girl group Aespa. Sale destroyed 50 million dollars from SM’s market value as Chinese fans threatened to boycott the group’s albums.
However, Goldman Sachs said it sees “high potential for estimate revisions” as companies continue to post multi-year earnings growth. In 2023, all four companies published higher full year income and net profit.
Excellent score
Goldman said the selloff is driven by markets driven by album sales, which have historically been considered a key indicator of fan bases and, by extension, companies’ prospects.
“We challenge this prevailing thinking by arguing that offline concert audiences… are the best metric for measuring K-pop’s growing reach,” the analysts wrote. They explained that album sales can be tainted by share of wallet, where one fan can buy multiple albums – a common occurrence among K-pop fans.
Analysts also said album sales have surged during the pandemic due to a lack of offline interaction, which has skewed the numbers with fans.
Japan will provide short-term economic growth
Measuring the industry on in-person concert attendance, Goldman said that “growth has not stopped at a rapid pace” and “we see audience growth in Japan as a key driver of growth in the near term.”
Analysts see Japan as a significant opportunity for K-pop companies to grow their fan base in the near future, “which we believe the market is missing.”
They note that Japan has one of the largest overseas K-pop fan bases, with Hybe, SM and JYP collectively holding 7% of the live music market in Japan. Goldman noted that Japan’s leading talent agency, Johnny & Associates, was mired in a major scandal, causing the industry to become more favorable to K-pop artists.
In 2023, Japan’s biggest music show “Kohaku Uta Gassen” invited five K-pop artists and two localized groups created by K-pop companies. This was the first time since 2011 that the show featured male K-pop artists and had the largest number of K-pop groups ever featured.
Goldman estimates that between 2023 and 2026, combined annual concert audiences in Japan will grow by 24%, with the combined share of Hybe, JYP and SM doubling from 7% to 14%.
Catalysts for growth in Japan include new Japanese boy group SM NCT Wish, as well as upcoming boy group JYP NEXZ.
Global fan base
Goldman is also optimistic about the global growth of the K-pop fan base, especially in markets such as the United States.
The report points to the success of Hybe-managed girl group NewJeans on the US charts. In a March 27 report, analysts noted that NewJeans’ latest album reached number one on the US Billboard 200. The group’s lead single, “Super Shy”, peaked at number two on the Billboard Global 200.
The group also became the first South Korean girl group to perform at Lollapalooza. The Chicago Sun Times reports. the band may have managed to attract the largest audience in the festival’s history to the festival’s 5 p.m.
Le Sserafim, managed by Source Music, a subsidiary of Hybe, also debuted at the Coachella music festival on April 13, with another show scheduled for April 20.
Hybe also recently announced that 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 said the announcement is a visible sign that K-pop is becoming mainstream around the world, resulting in a competitive position that provides greater bargaining power in business relationships.
The analysts concluded that the sector faces a “long run of growth”, adding that “further declines in wallet share, which has normalized close to pre-Covid levels, appear limited in our view.”