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Stocks of SM and YG Shine Again Amid K-pop Boom

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2012.01.31 15:47 Mwave Oh, MiJung

Shares of entertainment management agencies have been back on the roll with powerhouses such as SM Entertainment and YG Entertainment leading the boom of entertainment stocks.

In the early and mid 2000s, the entertainment firms earned a bad reputation by going public through backdoor listings, and then fleeing the market. But a few of the entertainment firms that rode it out and stayed on the market have hit a boom, riding on the K-pop craze that began sweeping across Asia in the late 2000s.

Shares of SM Entertainment more than tripled this year to 53,000 won (as of January 30) from 20,000 won of early last year. If we set the clock back two years, the change would seem to be more striking. In early 2010, its shares amounted to around 5,000 won, which means shares have soared tenfold over the last two years.

Stocks of SM and YG Shine Again Amid K-pop Boom

YG Entertainment has also become a KOSDAQ favorite since its debut on the stock exchange market last November. YG went public at 34,000 won per share and its value, which more than doubled on the initial day, has been showing an upward trend before it closed at 97,000 won as of January 30. JYP Entertainment, which went public early last year through a backdoor listing, saw its shares grow fivefold in a year.

However, there are also doubts and concerns over talent agency stocks due to the industry’s unreliability. SM Entertainment caused a stir by reversing its decision that it would not increase its capital stock late last year, as the company will be increasing its stock on February 3. The revelation that the company’s executives sold stocks after a sharp rise in stock prices also caused controversies.

One thing that draws attention is that SM’s Chairman Lee Soo Man will be participating in the increase of stocks, but Lee will be reportedly using the funds raised by selling his stocks.

In addition, some analysts point out entertainment stock prices have grown too much compared to its actual performance. As of the third quarter of last year, the earnings of SM Entertainment fell short of 10 billion won. Meanwhile, the shares of the company have been steadily growing, riding on the Korean Wave and growing popularity of the agency’s artists.

YG Entertainment, like other talent agencies, can be vulnerable to risk factors. Last year, the talent agency faced a hurdle as G-Dragon was charged with marijuana use.

To be sure, current entertainment stocks are different from shares of entertainment companies which scrambled to go public in the past. SM Entertainment and YG Entertainment have solidified their place in the industry over the years and have been recognized for their solid performance. But the concerned views on the recent hike of stock prices are understandable given that entertainment stocks can be shaky at any time, depending on success or failure of companies’ artists.

An industry associate said, “Entertainment companies might not be suitable for listings in nature as such companies pour profits earned from their investment into stars who will make money rather than generating tangible products through investment. This means the system that yields profits can tumble at any time when such stars leave the company.”

Photo credit: SM Entertainment

Reach reporter Oh MiJung on Twitter @isyutar!

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YG Entertainment 20120131 JYP Entertainment 20120131 SM Entertainment 20120131
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