Despite record second-quarter revenue driven by BTS concerts, K-pop agency Hybe saw its market cap drop by $1.96 billion, with shares plummeting over two days. Analysts attributed the decline to lower-than-expected profit margins, as high-volume concert revenue, which carries higher artist-settlement costs, overshadowed more profitable merchandise sales. Brokerages remain optimistic, citing future merchandise growth and the success of new and returning groups like Cortis, Katseye, and NewJeans to boost earnings.
Despite a blockbuster performance by its flagship group BTS, South Korea's K-pop giant Hybe faced a significant setback in its market valuation, losing as much as 2.845 trillion won ($1.96 billion) in less than 24 hours. This downturn occurred even as the agency reported record revenue and operating profit for its second quarter.
Hybe's shares plunged 16.09% on Tuesday, marking its steepest single-day decline since June 2022, and further extended losses by tumbling an additional 16.31% on Wednesday to reach its lowest point since September 2024.
The unexpected stock movement was primarily attributed to the company's profit margins falling short of market expectations, despite robust financial results. Analysts noted that while concert revenue was the main engine behind the record figures, it is a lower-margin business compared to merchandise sales.
Concert revenue soared an impressive 243.3% year-on-year and a staggering 630% quarter-on-quarter, largely fueled by BTS's Arirang tour which commenced in South Korea on April 9. However, this growth came with a lower operating margin of 11.8% for the second quarter, missing SK Securities' projection of 12.7% and Eugene Securities' 12.2%.
SK analyst Park Jun-hyung highlighted in a July 29 note that the higher proportion of tour revenue led to increased artist-settlement costs, thereby impacting profitability. This sentiment was echoed by IM Securities analyst Hwang Ji-won, who categorized mature-artist concert revenue, such as that from BTS, as relatively low-margin, contributing to elevated cost pressure.
The market had anticipated revenue growth to be driven by higher-margin merchandise sales, which can boast profit margins of up to 50%, as previously noted by analysts. Hybe, however, announced ambitious plans for the future, expecting over 200 additional concerts from all its artists in the second half of 2026, building on 119 concerts in the first half, marking its busiest year for concerts since 2021.
'Incomprehensible'
Despite the recent stock dip, brokerage firms maintain a positive outlook on Hybe. Kiwoom Securities analyst Lim Soo-jin anticipates that increased merchandise production in the second half of the year, alongside expanded tours from emerging groups like Cortis and Katseye, will bolster future earnings.
IM Securities also pointed to the promising growth of rookie groups and the anticipated return of girl group NewJeans as positive drivers for Hybe's financial performance. NewJeans, one of Hybe's most successful new acts, recently emerged from a prolonged contract dispute with Hybe subsidiary ADOR. A South Korean court ruled in December that NewJeans' contract with ADOR remains valid until 2029.
— CNBC's Jenny Lee contributed to this report.
