Investors in the K-pop sector have faced challenges at the beginning of the year, with lower fourth-quarter sales and profits impacting stock prices. The “big four” K-pop companies, including JYP Entertainment, YG Entertainment, Hybe, and SM Entertainment, have all seen declines in their share prices since the start of the year. SM Entertainment, in particular, faced a significant stock drop following a dating scandal involving one of its artists, Karina. Despite these challenges, Goldman Sachs expressed optimism for the industry, highlighting the potential for a valuation re-rating as companies continue to deliver multi-year earnings growth.
Goldman Sachs emphasized the importance of focusing on offline concert audience growth as a superior metric for measuring the reach of K-pop, rather than album sales, which can be influenced by factors like wallet share and the pandemic-driven spike in sales during the lack of offline interactions. The analysts also identified Japan as a key growth driver in the near term, highlighting the substantial fanbase growth opportunity for K-pop companies in the Japanese market, which has been overlooked by the market. They noted that K-pop companies are gaining a larger share of the live music market in Japan, especially with recent invitations to major music shows like Kouhaku Uta Gassen.
In addition to Japan, Goldman Sachs also pointed to the global fanbase growth of K-pop, particularly in markets like the U.S. The success of Hybe-managed girl group NewJeans in the U.S. charts and their performance at major music festivals like Lollapalooza and Coachella indicates the increasing popularity of K-pop globally. Hybe’s expansion of partnership with Universal Music Group further cements K-pop’s mainstream position, allowing for stronger bargaining power in business relationships. The analysts concluded that there is a long runway of growth ahead for the K-pop sector, with limited downside for wallet share normalized close to pre-Covid levels.
Goldman Sachs’ report highlighted the misinterpretation of the K-pop sector by the market, with a focus on album sales overshadowing the potential for offline concert audience growth. The decline in stock prices for K-pop companies following negative news like dating scandals underscores the market’s tendencies to react to short-term factors. However, the analysts remained optimistic about the industry’s long-term growth prospects, especially in key markets like Japan and the U.S. The success of K-pop artists in global platforms like music festivals and charts demonstrates the increasing popularity of the genre worldwide, leading to a competitive advantage for K-pop companies.
The analysts identified catalysts for growth in Japan, including the rise of new K-pop groups like SM’s NCT Wish and JYP’s NEXZ. These developments, coupled with the favorable industry conditions in Japan following a major scandal involving a top talent agency, present significant opportunities for K-pop companies to expand their reach in the market. The global fanbase growth of K-pop, exemplified by the success of groups like NewJeans and Le Sserafim in the U.S. and at major music festivals, further solidifies the genre’s position in the mainstream music industry. The expansion of business partnerships with major players like Universal Music Group also indicates the increasing influence and presence of K-pop on the global stage.
