NewJeans, Hybe and Coachella shows to lead turnaround in Kpop

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107401584 1713246751747 gettyimages 1591373204 newjeans thu8 3 lollapalooza2023366 ialfjduh

Investors in the K-pop sector have faced challenges this year due to lower sales and profits in the fourth quarter, as well as dating scandals affecting stock prices. Despite this, Goldman Sachs remains optimistic about the industry, stating that the K-pop sector is “misunderstood.”

Stocks of major K-pop companies, including JYP Entertainment, YG Entertainment, Hybe, and SM Entertainment, have all declined. This decline was exacerbated by a dating scandal involving one of SM Entertainment’s artists, leading to a significant drop in the company’s market value.

Goldman Sachs believes that there is potential for a re-rating in valuation, as companies continue to deliver earnings growth over multiple years. Despite the challenges, all four companies reported higher full-year revenue and net profits for 2023.

Goldman challenges the traditional focus on album sales as a key metric for fan base size, arguing that offline concert attendance is a superior indicator of K-pop’s reach. The analysts also noted the distorted impact of the pandemic on album sales and emphasized that offline interactions are a crucial factor.

The analysts anticipate growth in Japan as a key driver for the industry in the near term, with significant opportunities for fan base expansion. They highlighted the favorable market conditions in Japan following a scandal involving a top talent agency, which has made the industry more receptive to K-pop artists.

Goldman also highlighted the global fan base growth potential of K-pop, particularly in markets like the U.S. They pointed to the success of Hybe-managed girl group NewJeans on U.S. charts, as well as their performance at Lollapalooza. Additionally, Hybe’s partnership expansion with Universal Music Group signals the increasing mainstream presence of K-pop globally.

Overall, Goldman sees a long runway of growth ahead for the K-pop sector, with limited downside risk in terms of wallet share. They believe that K-pop’s competitive position in the global music industry will only strengthen in the coming years.

Investors in the K-pop sector have had a challenging start to the year due to lower fourth-quarter sales and profits, as well as dating scandals affecting stock prices. However, Goldman Sachs remains optimistic, stating that the K-pop sector is “misunderstood” and has high potential for valuation re-rating. While shares of major K-pop companies have fallen, Goldman argues that offline concert audience growth is a superior metric compared to album sales, which can be influenced by wallet share.

Goldman sees short-term growth potential in Japan, where K-pop companies are gaining traction due to a scandal involving Japan’s top talent agency. The analysts predict significant fanbase growth in Japan, with the combined share for Hybe, SM, and JYP doubling from 7% to 14%. Additionally, they are bullish on K-pop’s global fanbase growth, particularly in the U.S., citing the success of groups like NewJeans and Le Sserafim on the U.S. charts and at music festivals like Lollapalooza and Coachella.

Hybe, the home of BTS, recently announced an expanded partnership with Universal Music Group, which includes exclusive distribution rights for Hybe’s artists and labels. This move signifies the mainstream global appeal of K-pop and strengthens the sector’s bargaining power in business relationships. Overall, Goldman believes there is a long runway for growth in the K-pop sector, with limited downside for wallet share as it has normalized close to pre-Covid levels.

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