K-pop stocks struggle amid scandals, sluggish earnings

K-pop powerhouses are grappling with a loss of growth momentum, with Hybe taking the hardest hit amid ongoing scandals.

Hybe, home to K-pop sensation BTS, saw its shares plunge 4.56 percent Wednesday, closing at 163,100 won ($120), the lowest since December 2022.

This marked the fourth consecutive day of declines, with the stock down 11.2 percent since Aug. 8, despite a brief rally following better-than-expected second-quarter results. Hybe reported record second-quarter sales of 640.5 billion won, but operating profit shrank 37 percent year-on-year to 50.9 billion won.

The sharp decline in stock value follows multiple setbacks, including BTS member Suga's drunk driving incident and rumors surrounding Hybe Chairman Bang Si-hyuk's relationship with a 23-year-old streamer. These controversies compound ongoing disputes between Hybe and Min Hee-jin, CEO of the subsidiary label Ador, over management rights, which have significantly impacted Hybe’s stock performance. Since peaking at 256,000 won in January, Hybe's shares have plummeted 36 percent.

Hybe is not alone, as the broader K-pop industry faces challenges.

JYP Entertainment, home to Twice and Stray Kids, has seen its stock price more than halved since the start of the year, closing at 50,300 won on Wednesday. JYP's second-quarter sales fell 37 percent on-year to 95.7 billion won, with operating profit plunging 80 percent to 9.3 billion won.

Striving to find the "next Blackpink," YG Entertainment also reported disappointing results, with second-quarter operating profit swinging to an 11 billion won loss. YG’s stock has fallen 27 percent this year.

SM Entertainment has experienced significant volatility, with its stock dropping from a high of around 160,000 won last year to this year's low of 63,700 won on Aug. 5. Despite a 6 percent increase in second-quarter sales, operating profit fell 31 percent, contributing to a continued stock depreciation in the recent days.

Despite these setbacks, market analysts remain cautiously optimistic about a recovery in the K-pop sector, driven by the anticipated return of major groups later this year.

“The global success of affiliated artists and strong core business growth make the top four entertainment companies’ valuations still attractive,” said Kim Min-young, an analyst at Meritz Securities. She emphasized focusing on each company’s business developments, such as new artists and ventures, over short-term earnings, as these factors will more significantly impact stock prices.

For YG Entertainment, NH Investment & Securities analyst Lee Hwa-jeong remarked that the company is in "a transition period due to a generational shift." Despite a disappointing second quarter driven by one-time costs for new artists, Lee expects a rebound by 2025 with improved profitability and senior-level artists, including Blackpink, resuming activities.

As for Hybe, the market consensus suggests a rebound starting late this year, especially with BTS scheduled to make a full-group return in 2025.

"With the resolution of the lingering negative factors by around the fourth quarter, topped by anticipations of BTS' planned comeback next year, the stock price will likely start to recover around the end of this year," Lee Ki-hoon of Hana Securities said.