Entertainment Stocks: A Long-Term Perspective

Entertainment stocks have been experiencing a decline in recent times due to concerns over worsening performance and future business slump. However, a diagnosis has been made that they should be viewed from a long-term perspective.

As of the 15th, the stock prices of Hive, JYP Ent., SM, and YG Entertainment fell 32.09%, 55.42%, 37.73%, and 32.07%, respectively, compared to the beginning of the year.

Poor Performance: The Main Cause of Decline

Hanwha Investment & Securities evaluates that poor performance was more fatal than human risk as the cause of the decline in these entertainment stocks.

Park Soo-young, a researcher at Hanwha Investment & Securities, explained, “The reason the market focused more on the bad news than the good news was because of performance,” and “The poor sales led to a continued performance shock and the subsequent downward adjustment of annual estimates for this year and next year.”

Decline in Operating Profit

According to Hanwha Investment & Securities, the consensus for the combined operating profit of the four companies this year as of August is expected to be 494.5 billion won, a 25% decrease from the previous year’s operating profit.

No Need to Worry About Estimates Being Lowered

“But now there is really no market expectation for album sales,” Park said. “There is no need to worry about estimates being lowered any further.”

Expectations for Performance May Be Revived

He added, “However, considering that there wasn’t as much activity in the third quarter as in the second quarter due to the Olympics event, it would be better not to have high expectations for the third quarter performance.” He continued, “However, starting in the fourth quarter, expectations for performance may be revived as artists who made a comeback in the second quarter will make comebacks with albums, and global tours and MD sales will also increase.”

Profit Estimates to Rebound

Researcher Park said, “Based on this, next year’s profit estimates are also expected to end their downward adjustment and enter a period of rebound again.”

Music Streaming and Concert Attendance Indicators

He continued, “Although it is slow, music streaming indicators and concert attendance indicators are steadily increasing,” and “The attendance data of artists who are seeing streaming growth on global music platforms is growing rapidly.”

Artists with Expanded Global Popularity

“Artists with expanded global popularity show growth in global sales excluding albums,” said Park, adding, “This becomes the company’s performance.”

Profit Growth Next Year

Hanwha Investment & Securities forecasted that profit growth next year will also be large as indicators continue to grow.

Growth in Album Sales and Music Index

Researcher Park said, “In the case of younger artists, the growth in album sales is still going strong, and artists who are moving from younger to older artists are improving their music index, creating a driving force for future growth in global audience acquisition. Strong profit growth next year is a given.”

No Need to Rush

Researcher Park said, “There is no need to rush. From the time when fall is in full swing, we can look forward to next year and increase the sector weight,” and predicted, “Since it is a sector with empty supply and demand, a strong rebound in stock prices will occur when rerating begins.”