CHICAGO, ILLINOIS – AUGUST 03: (L – R) Danielle, Hyein, Hanni, Minji and Haerin of NewJeans carry out in live performance throughout Lollapalooza at Grant Park on August 03, 2023 in Chicago, Illinois.
Gary Miller | Filmmagic | Getty Pictures
It hasn’t been a simple begin to the 12 months for traders within the Ok-pop sector as decrease fourth-quarter gross sales and income, in addition to courting scandals, hit inventory costs.
Goldman Sachs, nevertheless, expressed optimism for the trade in a March 14 report, saying the Ok-pop sector is “misunderstood.”
Shares of Ok-pop’s “large 4” firms have all fallen for the reason that begin of the 12 months. JYP Leisure’s inventory has plunged over 37% 12 months so far, whereas YG Leisure shed practically 17%. Kospi-listed Hybe, residence of superstars BTS, noticed a smaller drop of about 4.5%.
Shares of SM Leisure have plunged over 17%. The decline comes as one of many company’s artists was embroiled in a courting scandal that drew widespread worldwide and home protection.
In February, the inventory fell for 5 straight periods to its lowest stage since October 2022 following the drama surrounding Karina, the chief of woman group Aespa. The sell-off wiped $50 million off SM’s market worth as Chinese language followers threatened to boycott the group’s albums.
Nonetheless, Goldman Sachs stated it sees a “excessive potential for valuation re-rating,” as firms nonetheless proceed to ship multi-year earnings progress. For 2023, all 4 firms posted larger full-year income and internet income.
A superior valuation metric
Goldman stated the sell-off is tied to markets specializing in album gross sales, which has traditionally been thought of a key proxy for the variety of followers and, by extension, prospects for the businesses.
“We problem this mainstream mindset, arguing that offline live performance viewers… is the superior metric to measure the rising attain of Ok-pop,” the analysts wrote. They defined album gross sales may be tainted by pockets share, the place one fan can purchase a number of albums — a standard incidence among the many Ok-pop fanbase.
The analysts additionally stated album gross sales spiked in the course of the pandemic as a result of lack of offline interactions, which distorted the metric in relation to followers.
Japan to energy short-term progress
When evaluating the trade by in-person live performance attendance, Goldman stated “progress has not stopped scaling at a speedy tempo,” and “within the close to time period, we see viewers progress in Japan as the important thing progress driver.”
The analysts see a considerable fanbase progress alternative for Ok-pop firms within the near-term in Japan, “which we imagine is being neglected by the market.”
They be aware Japan has been one of many largest abroad fanbases for Ok-pop, with Hybe, SM and JYP taking a mixed 7% of the reside music market in Japan. Goldman identified that Japan’s high expertise company Johnny & Associates has been mired in a significant scandal, resulting in the trade turning extra favorable to Ok-pop artists.
In 2023, Kouhaku Uta Gassen, the biggest music present in Japan, invited 5 Ok-pop artists and two localized teams produced by Ok-pop firms. It was the primary time the present has featured male Ok-pop artists since 2011 and the biggest variety of Ok-pop teams ever featured in its line up.
Goldman estimated Japan live performance audiences will develop at a 24% compounded annual progress price from 2023 to 2026, with the mixed share for Hybe, JYP and SM doubling from 7% to 14%.
Catalysts for progress in Japan embody SM’s latest Japanese boy group NCT Want in addition to JYP’s upcoming boy group NEXZ.
The worldwide fanbase
Goldman can also be bullish on Ok-pop’s international fanbase progress, particularly in markets just like the U.S.
The report pointed to the success of Hybe-managed woman group NewJeans on U.S. charts. In a March 27 report, analysts famous NewJeans’ most up-to-date album hit No. 1 on the U.S. Billboard 200. The group’s lead single, “Tremendous Shy,” charted at No. 2 on the Billboard International 200.
The group additionally was the primary South Korean woman group to carry out at Lollapalooza. The Chicago Solar Occasions reported the group could have managed to attract the largest viewers ever for the pageant’s 5 p.m. slot.
Le Sserafim, managed by Hybe subsidiary Supply Music, additionally made their debut on the Coachella music pageant on April 13, with one other present scheduled for April 20.
Hybe additionally lately introduced that it’ll increase its partnership with Common Music Group, together with unique distribution rights for Hybe’s artists and labels. UMG’s roster contains Taylor Swift, Ariana Grande and Justin Bieber.
Goldman stated the announcement is a visual signal that Ok-pop is changing into mainstream globally, resulting in a aggressive place that permits stronger bargaining energy in enterprise relationships.
The analysts concluded there’s “a protracted runway of progress forward” for the sector, including that “additional draw back for pockets share, which has normalized near pre-Covid ranges, appears restricted, in our view.”