HYBE ≠ BTS after big investments in diversification
HYBE's BTS risk came to the fore this week after a comment by one band member took 2 trillion won ($1.6 billion) off of the company's market capitalization in a flash.
Suggestions — since challenged by HYBE — by Suga on Tuesday that BTS might take some time off was enough to crash the stock, taking it down 25 percent in a day.
HYBE, previously known as Big Hit Entertainment, generated 98.2 percent of its revenue from BTS in 2018. The company sought to diversify its portfolio by acquiring music labels and tech companies, but only managed to bring the percentage down to 87.7 percent when it went public in October 2020.
Since then, the company has been silent on the breakdown.
What is known is that BigHit Music, a HYBE label that manages BTS and Tomorrow X Together, generates about two-thirds of HYBE's operating profit.
HYBE reported 190 billion won ($147 million) of operating profit and 141 billion won of net profit last year.
Analysts argue that HYBE does not equal BTS as a result of portfolio diversification. They say that the payoff from these efforts will come next year, though a profit dip in late 2022 is inevitable.
"It's true that the world tour, which was initially expected to take place in the latter half of the year, is up in the air now," said Kim Hyun-yong, an analyst at Hyundai Motor Securities.
"But we've all known that the members will start their military service and the band will go on a break at some point. It's just come at an unexpected time in an unexpected way that made people panic. But this could be an opportunity for HYBE to prove that it's not just the BTS agency but an entertainment company with a variety of business models."
Major music labels owned by HYBE include Source Music, purchased in 2019, Pledis Entertainment, acquired in 2020, and Ithaca Holdings, which manages Justin Bieber and Ariana Grande.
Next month, HYBE will be merging its Weverse fan community app with Naver's V Live online video service to provide a live communication tool to connect fans and artists.
The company also has at least two new groups — one female and one male — debuting this year.
"Military duty has always been a big risk with boy bands, but the timing could even be said to be lucky for HYBE," said music critic Cha Woo-jin. "The diverse business models may need some time to mature, but the fact that this all happened while all the members are still together could mean different things can be tried."
Other agencies have faced this problem, such as YG Entertainment when Big Bang members started their military duties in 2017, and SM Entertainment, when Exo members started their military duties in 2019. They muddled through with solo efforts by the other members and with new bands and groups.
"HYBE has more artists and platform businesses compared to the other agencies, so they're expected to perform better," said analyst Lee Gi-hun at Hana Financial Investment.
HYBE shares closed at 148,000 won, 2 percent higher than the previous trading day, on Thursday. They are down 66 percent from the all-time high and trading near their IPO price of 135,000 won.
"We will be seeking new business models, including debuting new artists, to keep our growth going," HYBE said in a statement.
BY YOON SO-YEON [firstname.lastname@example.org]