Entertainment stocks have struggled to gain traction lately as expectations for China lifting the "Korean Wave restrictions" weakened and third-quarter (July–September) results proved sluggish. On top of that, controversies involving celebrities have piled up as short-term negatives, analysts said.
According to the Korea Exchange (KRX) on Dec. 13, since November (Nov. 3–Dec. 12) JYP Entertainment fell 15.7%. Over the same period, SME (-13.14%) and HYBE (-12.17%) also declined. During this time, the KRX K-content Index, which includes leading entertainment names, dropped 8.94%, underperforming the KOSPI's 1.45% move.
Entertainment shares rose heading into the Asia-Pacific Economic Cooperation (APEC) summit in Gyeongju in late October on hopes that the Korean Wave restrictions would be lifted. Hopes for Korea–China cultural cooperation especially grew after news that Chinese President Xi Jinping would visit Korea for the first time in 11 years.
However, after APEC, the lack of clear progress in Korea–China cultural exchanges dampened investor sentiment. Adding to this, the sector's broadly weak third-quarter earnings further hurt risk appetite.
HYBE posted its first quarterly loss since listing as one-off expenses tied to a restructuring of its U.S. subsidiary and investments in new artists were concentrated in the third quarter. JYP Entertainment set a quarterly record for revenue at 232.6 billion won, but operating profit fell 15.7% on-year to 40.8 billion won. The faster rise in production and personnel expenses due to expanded tour scale was a burden.
To make matters worse, recent controversies involving popular celebrities such as Cho Jin-woong and Park Na-rae shook content-related stocks including CJ ENM, spilling over to the broader entertainment sector, analysts said. Concerns are growing that disruptions to the scheduling of drama and broadcasts could negatively affect corporations' results.
Hwang Ji-won, an analyst at iM Securities, said, "With entertainment companies' third-quarter results missing or merely meeting market expectations, earnings momentum weakened, and after APEC there was no short-term momentum," adding, "The 12-month forward price-earnings ratios (PER) of major entertainment companies have fallen to historically low levels."
Still, despite the recent slide, brokerages remain positive on the entertainment sector outlook. Meritz Securities estimates that next year the combined revenue and operating profit of four companies—SME, HYBE, YG Entertainment, and JYP Entertainment—will reach 6.8 trillion won and 944.7 billion won, respectively. That would be up 40.9% and 63.2% from this year, pointing to rapid growth for the sector.
Kim Min-young, an analyst at Meritz Securities, said, "Next year, expectations for full-group activities by the large intellectual property (IP) BTS, the monetization of younger IPs, and the growth potential of localized groups should remain intact."