Researchers Warn of YG’s Q2 Loss Decrease

Despite YG Entertainment’s stock price continuously reaching “52-week lows”and predictions of an operating loss in Q2, this year’s securities market has raised worries among retail investors regarding the stock’s future trajectory.

According to the Korea Exchange, YG Entertainment’s stock on the KOSDAQ market closed at 35,300 won on July 19th, which was a decrease of 0.7% from the previous day. The stock reached a new low during the day, dropping to 34,650 won.

YG Entertainment’s stock price reached a high of 95,200 won on May 30th of the previous year, but has since experienced a sharp decline to only 37.08% of its initial value in just 1 year and 2 months.

Despite the emergence of negative outlooks on YG Entertainment in the securities industry, analysts believe that the decline can be attributed to delayed generational shifts following the success of “BLACKPINK”, ultimately leading to lower performance expectations.

The prediction for Q2 of this year is especially grim.

According to a report released on July 17th by Kim Hye-young, a researcher at Daol Financial Group, YG Entertainment is expected to experience a significant decline in revenue and operating profit in the second quarter. The projected year-on-year decreases are 35.8% and 98.9%, with revenue estimated to be 101.7 billion won and operating profit at 300 million won.

Lee Sun-hwa, a researcher at KB Securities, predicted that YG Entertainment would experience a 41.1% decrease in Q2 revenue compared to the previous year, with a projected operating loss of 4.3 billion won.

FnGuide, a financial information company, gathered the average second quarter revenue and operating profit predictions from domestic securities firms, with estimates of 106.3 billion won and 6.9 billion won respectively. However, the forecasts made by Kim Hye-young and Lee Sun-hwa are notably lower than this consensus.

Kim Hye-young pointed out that YG Entertainment’s main sources of revenue in Q2 will be BABYMONSTER’s album sales and TREASURE’s concert earnings. She stressed that there may be a decrease in profitability this year, but there are expectations for improved performance in 2025.

She emphasized, “The current delay in generational shift is causing a performance ice age. In order to achieve sustainable growth, the success of BABYMONSTER and new IPs is crucial, along with taking steps to alleviate doubts about the production system.”

Lee Sun-hwa expressed concern about the absence of full-group activities from BLACKPINK, which had been a major source of income. This, combined with higher amortization costs due to individual exclusive contracts with members, has resulted in added pressure. Additionally, there has been an increase in investment expenses for the new IP BABYMONSTER.

Lee emphasized that prioritizing new IP investments this year could potentially harm the company’s overall performance. While TREASURE’s concert revenue is increasing, it is crucial for them to show consistent growth in their global fanbase by expanding their concert locations and increasing audience numbers.

As a result, Lee decreased her projected annual operating profit for the current year by 70%, from 45 billion won to 13 billion won. Additionally, she adjusted her predicted annual operating profit for next year to 63 billion won, a decrease of 26% from the previous estimate of 84 billion won.

Despite current challenges, it is predicted by certain analysts that YG Entertainment will see an improvement in their performance by the end of the year.

Despite the increasing expectations for full-group activities from BLACKPINK towards the end of the year and the potential for collaborations with established IPs like 2NE1 becoming more apparent, Lee Sun-hwa continues to maintain a “buy”recommendation, anticipating that the stock will gain upward momentum.

In addition, Kim Hye-young foresees that BLACKPINK’s comeback and world tour, scheduled for 2025, as well as BABYMONSTER’s release of a full album in the second half of this year and their concert in 2025, will contribute to a significant recovery in the performance industry starting from 2025.