[Into the Stocks] "Big Hit, Evolving from Leading Entertainment Stock to Platform Company"

[Asia Economy Reporter Minji Lee] “Isn't this the agency of BTS? It's an entertainment company, so why compare it with Naver and Kakao?”

The doubts raised at the time of the IPO last October are only now being gradually resolved. Big Hit's confident rationale for using IT and platform giants Naver and Kakao as peer groups for determining the IPO price is being proven by the growth of ‘Weverse’.

The Elevated Status of the ‘Weverse’ Platform

Big Hit's business model is divided into the ‘label’ segment that produces artists' music, the ‘solution’ segment that provides video and product services, and the platform segment responsible for ‘Weverse’ (formerly BNX). Among these, the market is most enthusiastically responding to ‘Weverse.’ Weverse was created to allow fans to conveniently enjoy music content produced by the label and secondary content based on it all in one place. Currently, it is a global platform used by fans in over 200 countries and regions.

Weverse has gone beyond being just a space for communication between fans or between fans and artists. It also enables the purchase of merchandise through the Weverse Shop along with artists' video content, and is evaluated as having a solid monetization strategy. In the past year alone, a total of 328 billion KRW worth of products and content were purchased through Weverse, accounting for over 40% of total sales.

Its potential for expansion into the global market is also broad. Recently, it established a strategic partnership with Universal Music Group (UMG), the world's top label. It is expected that four artist groups under UMG will join the platform, and domestically, BLACKPINK from YG Entertainment, which leads the K-Pop market alongside BTS, is planned to join.

Currently, other fan community platform businesses include SM Entertainment (Listen·Bubble), NCSoft, and CJ ENM (Universe). However, the industry expects Weverse to firmly secure the top position. Kihoon Lee, a researcher at Hana Financial Investment, explained, “Weverse and Venue Live, built by Big Hit and KeySwi JV, are platforms that maximize fan experience using advanced technology, making them highly competitive,” adding, “UMG has also invested in Venue Live, an online concert platform.”

Recently, the company solidified its growth as a platform company by changing its name from ‘Big Hit’ to ‘HYBE.’ At the brand briefing held on the 19th, Chairman Bang Si-hyuk said, “We needed a new company name as a symbol of a structure that encompasses, connects, and expands various businesses while understanding the broader meaning of entertainment,” and explained, “As an entertainment lifestyle platform company, we will provide experiences that enhance everyday happiness and convenience for everyone.”

Record-Breaking Performance Even Without BTS Concerts

COVID-19 did not stop Big Hit. Last year, Big Hit recorded its highest-ever performance, easily surpassing the ‘SM, JYP, YG Entertainment (hereafter, Enter)’ trio that led the entertainment stock era. Despite the pandemic causing almost no concert revenue domestically and globally, annual sales grew over 160% to 796.3 billion KRW, and operating profit reached 145.5 billion KRW. Notably, operating profit was more than twice the combined operating profit of the three entertainment companies, which was 61.3 billion KRW.

The segment contributing most to sales was album sales by artists and revenue from content and merchandise (MD). Since aggressively acquiring labels from 2019, Big Hit has been able to hold various artist IPs beyond BTS. By acquiring ‘Source Music (Le Sserafim)’, ‘Pledis (Seventeen, etc.)’, and ‘KOZ (Zico)’, album sales increased by about 196% year-on-year to 320.6 billion KRW. Merchandise and content revenues increased by 53% and 71%, respectively, leveraging these assets.

Considering the concerts canceled last year, sales of 1 trillion KRW might have been possible. Typically, sales composition includes concerts (33%), merchandise (23%), albums and music (18%), and content (13%), but last year, offline concerts could not be held due to COVID-19 spread. According to the company, artists within the company had over 60 world tours scheduled last year. Adding direct sales from canceled concerts (200 billion KRW) and merchandise and content sales, last year's sales growth rate is estimated to have been significant.

According to financial information provider FnGuide, securities firms forecast sales of 1.2057 trillion KRW and operating profit of 241.4 billion KRW for this year. With the easing of COVID-19 and the resumption of offline concerts, achieving 1 trillion KRW in sales is expected to be easy. Considering plans to actively secure overseas artist IPs, profitability using these assets is also predicted to increase. Jinhae Ji, a researcher at Hanwha Investment & Securities, said, “A joint venture has been established with a UMG label to develop a boy group mainly targeting the U.S. market,” and added, “Big Hit is positioned as a leader in the evolution of fandom economy.”

Securities Firms’ ‘Highly Positive’ Reviews... Highest Target Price Set at 350,000 KRW

[Image source=Yonhap News]

Securities firms also positively evaluate Big Hit's growth trend. They gave high marks for the active investments made to evolve from an entertainment company group to a platform company. After the IPO, the stock price dropped to around 140,000 KRW, and target prices from securities firms ranged widely from 160,000 KRW to 380,000 KRW, but now it is evaluated as having secured new growth engines by dominating the fan platform ecosystem.

Institutions, which had consistently sold stocks in the domestic market this year, have shown love calls for Big Hit. Institutions purchased 67.8 billion KRW worth of Big Hit shares, ranking tenth in net buying volume among individual stocks.

Among recent upward revisions of Big Hit's target price, NH Investment & Securities set the highest target price at 350,000 KRW. Researcher Hwajeong Lee of NH Investment & Securities explained, “The sales stability based on differentiated planning capabilities has been proven by results,” and added, “With new businesses starting in earnest through collaboration with major players and the beginning of business structure advancement, attention should be paid to mid- to long-term growth rather than simple trading perspectives.”

As of 11 a.m. on the 24th, Big Hit's stock price was 220,500 KRW, down 0.6% from the previous day. The stock price has risen 38.8% this year. Its market capitalization is 7.9263 trillion KRW, far exceeding the combined total of SM (148 billion KRW), JYP (1.246 trillion KRW), and YG (864 billion KRW), which amounts to 2.258 trillion KRW.