HYBE, South Korea’s leading entertainment agency behind K-pop group BTS, lost over 1 trillion won ($700 billion) in market capitalization in the past two weeks amid a management dispute with Min Hee-jin, CEO of its subsidiary ADOR.
The internal strife at HYBE comes as the company’s first-quarter revenue saw a double-digit decline following the enlistment of BTS members. The company’s operating profit plunged 73% year-on-year to 14.4 billion won.
SM Entertainment, another K-pop agency, is facing similar challenges. The company’s shares have been on a roller coaster ride after Karina, a member of girl group aespa, confirmed her relationship with an actor, followed by a handwritten apology and a breakup. SM reported that its operating profit in the first quarter fell 15% to 15.5 billion won year-on-year.
YG Entertainment’s shares have also been fluctuating due to the issue of renegotiating contracts with Blackpink, the girl group that accounts for 80% of the agency’s sales. While all four members of Blackpink renewed their group contracts, none extended individual contracts. The agreement to proceed only as a group resulted in a less-than-ideal contract outcome, forcing YG to focus on diversifying its artist lineup.
Experts say the K-pop industry, which relies heavily on its artists, is mired in a so-called “human risk.” Issues such as re-signing contracts, dependence on specific artists and star producers, romance rumors, and disputes over management rights have led to double-digit declines in earnings and plummeting stock prices.
This has led to increased skepticism regarding the valuation of these companies. As of last year, only HYBE posted annual sales exceeding 1 trillion won. The K-pop industry’s operating profit also fell below 300 billion won, suggesting that the stock prices of these companies may be inflated.
HYBE’s price-to-earnings ratio (PER) is estimated at 32.22 times, more than three times the average PER of companies listed on the KOSPI, according to market tracker FnGuide. A relatively low PER indicates undervaluation, while a higher number suggests overvaluation. The PER of YG, which is heavily dependent on Blackpink, follows next at 21.82 times. JYP Entertainment is at 18.20 times, and SM is at 16.69 times.
Some experts predict that doubts about the industry’s multi-label system, highlighted by HYBE’s conflict with ADOR, could negatively impact their stock prices.
“Human capital risks in the entertainment industry were previously limited to rumors about stars and failed artist re-signings but now have expanded to include conflicts between agencies and producers,” said Ji In-hae, an analyst at Shinhan Securities & Investment. “This is raising concerns about the industry as a whole, regardless of the fundamentals of individual companies.”
