K-pop stocks have sold off this year, but Goldman sees a turnaround

K-pop entertainment stocks have experienced a downturn in recent times.

Among them, JYP Entertainment has been hit the hardest, with its market value plummeting by approximately one-third.

This decline has been attributed to investors prioritizing album sales, which have seen a decline in the latter half of 2023.

Goldman Sachs, however, remains optimistic about the K-pop industry, emphasizing that album sales are not the most reliable indicator of success.

The firm recommends evaluating companies based on in-person concert attendance, a metric that has witnessed consistent growth.

Japan is believed to be a key driver of growth for concert attendance.

Despite the initial decline in share prices, the four major K-pop companies (JYP, YG, Hybe, and SM) have all reported increased earnings and revenue for the full year.

Goldman Sachs attributes the sell-off to investors focusing on album sales rather than offline concert attendance, a more accurate gauge of the industry’s growth.

The analysts contend that album sales can be influenced by “wallet share,” where fans purchase multiple copies, distorting the correlation between album sales and the actual number of fans.

They also point out that the spike in album sales during the pandemic was an anomaly due to the lack of offline interactions.

In terms of concert attendance, Goldman Sachs notes the impressive growth in Japan, which has historically been a stronghold for K-pop.

They estimate a substantial fanbase increase for K-pop companies in Japan over the next few years.

Furthermore, Goldman Sachs highlights the global growth potential of K-pop, particularly in the United States.

They point to the success of Hybe’s NewJeans and Le Sserafim in the U.S. music market and the partnership between Hybe and Universal Music Group as indicators of the industry’s globalization.

Overall, Goldman Sachs maintains a bullish outlook for the K-pop sector, emphasizing the industry’s growth trajectory, undervalued valuations, and strong growth potential in key markets such as Japan and the United States.