[Inside the Industry] Entertainment Powerhouse SM Aiming for a Rebound with NFT and Metaverse

Stock Prices Sluggish but... NCT's Upward Momentum Continues
Metaverse and NFT Optimism Also Effective

[Asia Economy Reporter Minwoo Lee] Although SM Entertainment's (hereafter SM) stock price has recently been sluggish, there are still expectations for growth potential this year. This outlook is based on the fact that its idols achieved record-breaking results last year and that there is growing anticipation for new business ventures related to non-fungible tokens (NFTs) and the metaverse (expanded virtual world).

According to financial information firm FnGuide on the 24th, SM's consolidated earnings forecast (consensus) for the fourth quarter of last year is 208 billion KRW in sales and 22.4 billion KRW in operating profit. Sales are estimated to increase by 12.93% and operating profit by a staggering 1560.24% compared to the same period last year.

However, securities firms expect the results to fall slightly short of the consensus. Cape Investment & Securities projected SM's fourth-quarter sales at 196.1 billion KRW and operating profit at 18.1 billion KRW. Ebest Investment & Securities forecast operating profit to be only 14.1 billion KRW. This is because approximately 4 billion KRW in performance bonuses due to strong results and about 3 billion KRW in IPO fees for its subsidiary DearU are expected.

The stock price remains sluggish as well. After recording 79,100 KRW on the ex-dividend date (29th) in December last year, it dropped to 60,700 KRW on the 10th of this month. Although it has somewhat recovered since then, it has struggled to surpass the 70,000 KRW mark. As of 11:35 AM on the day, it was recorded at 64,200 KRW, down 7.23% from the previous day.

NCT (Provided by SM Entertainment) [Image source=Yonhap News]

Nonetheless, analysis suggests that growth momentum still remains. First, the rapid growth of NCT is highlighted. With album sales of 10.91 million copies last year, it ranked first among K-pop artists, growing more than 120% compared to the previous year. Considering that sales were 810,000 copies in 2019, this means sales increased more than 13 times in two years. Expectations for concert revenue have also increased. NCT attracted about 280,000 attendees from January 2019 to February 2020 through performances. With offline concerts resuming, it is expected that the recent popularity will translate into even greater sales.

Expectations for new businesses utilizing the metaverse and NFTs are also growing. In an environment where the industry landscape itself has changed, the intellectual property (IP) value of idols secured by entertainment companies has unlimited upside potential. SM has already launched a membership service called ‘Meta-Passport’ this year. This service records fandom activities such as concert reservations digitally, allowing rewards like NFTs based on individual activity records, which is evaluated to expand fandom size and strengthen cohesion. Minha Choi, a researcher at Samsung Securities, analyzed, "The clear expansion of major idols' achievements will continue to support the core business this year. Since SM is also actively pursuing metaverse business, if related results materialize, it will bring additional profits."