The combined market capitalization of major entertainment companies has evaporated by more than 8 trillion won this year, as investment funds concentrated on artificial intelligence (AI) chip stocks.
According to the Korea Exchange (KRX) on the 19th, as of the 16th of this month, the combined market capitalization of Korea's four major entertainment companies—JYP Entertainment, YG Entertainment, SM Entertainment, and HYBE—stood at 12.978 trillion won, down 8.038 trillion won from the end of last year (21.016 trillion won).
SM Entertainment recorded the largest drop in market capitalization. It fell 48.8% from 3.091 trillion won at the end of last year to 1.582 trillion won. YG Entertainment followed with a 42.1% decline, HYBE with 36.0%, and JYP Entertainment with 35.7%.
The average share-price decline of these four stocks this year reached 40.9%. Over the same period, the KOSPI rose 61.9%. The drop was also far steeper than the KOSDAQ index's decline of 14.4%.
The industry attributes the fall to the expiration of expectations that had been priced in ahead of BTS's Gwanghwamun comeback concert in March this year, coupled with weakened hopes for a mega intellectual property (IP) to replace BTS. Analysts add that the AI investment frenzy concentrated market funds in chip stocks, dampening investor sentiment across the entertainment sector.
"The recent price-to-earnings ratio (PER) of the entertainment sector reflects excessive concern following the AI investment concentration and the fading of BTS comeback momentum," said Ji In-hae, a researcher at Shinhan Investment & Securities. "This was compounded by the absence of an IP that could surpass BTS, along with concerns over an earnings peak-out in the second half of next year."
Earnings forecasts for the entertainment companies are also being lowered. According to financial information provider FnGuide, the combined second-quarter operating profit forecast for the four entertainment companies—for which at least three brokerages provided estimates—totaled 257.9 billion won, revised down by 17 billion won from three months earlier (274.9 billion won).
Target prices were also lowered by an average of 7.4%. YG Entertainment saw the largest adjustment, with its average target price cut 13.1% from the previous level, followed by SM Entertainment (-9.1%), HYBE (-5.7%), and JYP Entertainment (-1.7%).
Still, brokerages assess that valuation burdens have been largely resolved given the recent steep declines. In this second-quarter earnings release, growth in the music streaming segment is cited as the key variable that will determine whether stocks rebound.
"In this earnings season, the qualitative content of the results matters more than the numbers," said Lee Hwa-jung, a researcher at NH Investment & Securities. "Since music, once it enters a hit trajectory, generates long-term long-tail revenue, if second-quarter music growth is confirmed, it could lay the foundation for earnings improvement over the coming quarters."
Brokerages cite HYBE as their top pick. The reason is that BTS's full-group activities will continue into next year, and the fifth-generation artists are expected to expand their earnings contributions. "BTS's activities are set to continue through the first half of next year," said Park Jun-hyung, a researcher at SK Securities. "The rapid growth and monetization of low-tenure IP such as Cortis and KATSEYE will act as a factor gradually reducing dependence on mega IP."
