Shares of South Korea’s major entertainment companies have continued their steep decline this year, evaporating more than 8 trillion won in market capitalization. Despite a wave of positive earnings releases and announcements of comebacks by top-tier artists, the sector has been largely shunned as liquidity concentrates overwhelmingly in artificial intelligence (AI) semiconductor stocks and a sense of post-event deflation takes hold. While brokerages are lowering their target prices across the board, some analysts suggest that the reduced valuations could actually present a mid- to long-term investment opportunity.

According to the Korea Exchange on the 20th, the combined market capitalization of the nation’s four largest entertainment firms—JYP Entertainment (035900), YG Entertainment (122870), SM Entertainment (041510), and HYBE—stood at 12.98 trillion won (approximately $8.8 billion) as of the 16th. This represents a decline of 8.04 trillion won from the 21.02 trillion won recorded at the end of last year. By company, SM Entertainment suffered the steepest drop, plummeting 48.8%, followed by YG Entertainment (-42.1%), HYBE (-36.0%), and JYP Entertainment (-35.7%).

Stock price performance has been equally dismal. Since the beginning of the year, the average share price decline for these four stocks has reached 40.9%. This stands in stark contrast to the benchmark KOSPI, which surged 61.9% over the same period, and far exceeds the 14.4% drop in the tech-heavy KOSDAQ index. A major factor was the wave of profit-taking that ensued after BTS’s Gwanghwamun comeback concert earlier this year, as the anticipation that had built up ahead of the event quickly dissipated. Adding to the pressure, the AI investment frenzy has funneled market liquidity into a handful of leading sectors like semiconductors, leaving the entertainment sector largely ignored.

Reflecting this stock price weakness, analysts’ expectations are also rapidly declining. According to financial data provider FnGuide, a total of 12 brokerage reports lowered target prices for the four entertainment companies between the 13th and 19th, with an average reduction of 13.45%. This month, seven securities firms, including NH Investment & Securities, Samsung Securities, KB Securities, and Kiwoom Securities, lowered their target prices for SM Entertainment to a range of 109,000 won to 114,000 won. For JYP Entertainment, seven firms including Kiwoom Securities and NH Investment & Securities cut their targets to between 77,000 won and 83,000 won. Target prices for HYBE and YG Entertainment were also adjusted downward to ranges of 330,000 won to 350,000 won and 61,000 won to 64,000 won, respectively.

Earnings forecasts are also retreating. According to FnGuide, the combined second-quarter operating profit estimate for the four companies, based on projections from three or more securities firms, is 257.9 billion won (approximately $174.0 million), down 17 billion won from 274.9 billion won three months ago. The average target price decline rate reached 7.4%. YG Entertainment saw the largest adjustment, with its average target price falling 13.1% from 85,889 won to 74,632 won, followed by SM Entertainment (-9.1%), HYBE (-5.7%), and JYP Entertainment (-1.7%).

Analysts point to rising costs, rather than declining revenue, as the primary concern weighing on the sector. For SM Entertainment, album sales fell short of expectations, while an increased settlement ratio due to expanded activities by senior artists, North American promotion costs, and higher investment in new talent are all seen as potential pressures on top-line growth, compressing its valuation. JYP Entertainment faces increased cost burdens due to sluggish album sales from returning artists, compounded by TWICE’s contract renewal season and Stray Kids’ upcoming military enlistment, creating a need to prove its earnings growth.

Notably, even HYBE, which is expected to report record-high earnings, could not avoid a target price cut. HYBE’s second-quarter revenue is projected to surge 80% year-on-year to 1.27 trillion won (approximately $856.9 million), with operating profit jumping 121.6% to 146.1 billion won (approximately $98.6 million). Despite this, Eugene Investment & Securities and SK Securities lowered their target prices by an average of over 11.5%. This is interpreted not as a problem with individual company profit estimates, but as a result of a lower growth premium—specifically, a contraction in the price-to-earnings ratio (PER)—applied to the entire entertainment sector.

“The entertainment sector’s PER has fallen from a historical range of 20-35x to the current 12-22x,” said Ji In-hae, an analyst at Shinhan Investment Corp. “This is due to a combination of the liquidity concentration in AI, excessive concerns following the sell-on after the BTS comeback momentum, the absence of intellectual property (IP) that can surpass BTS, and lingering worries about an earnings peak-out in the second half of next year.”

However, experts agree that these target price cuts do not signify a fundamental deterioration in the entertainment companies’ sales or a weakening of their market dominance. The diagnosis is that the adjustments merely reflect a sector-wide decline in valuation appeal due to skewed liquidity, while the core fundamentals of the major players remain solid. “It is difficult to predict when the liquidity imbalance will ease in the short term, but considering the fundamentals of global IP, investment remains valid from a mid- to long-term perspective,” said Lim Su-jin, an analyst at Kiwoom Securities.

Some analysts even suggest that the recent sharp stock price decline has largely alleviated valuation burdens, creating a buying opportunity. “The first-half stock performance of entertainment companies was disappointing, but the industry’s achievements have steadily expanded,” said Choi Min-ha, an analyst at Samsung Securities. “We are simultaneously witnessing the growth of younger artists and the expansion of the revenue base for top-tier artists.”

HYBE is unequivocally identified as the stock holding the key to a rebound. With BTS continuing its world tour across North America, Europe, and South America until March next year, there are expectations that diversified revenue strategies—including merchandise sales and album sales beyond concert performances—will lead to visible earnings improvement. Kiwoom Securities expects HYBE to report record-high second-quarter earnings, while Shinhan Investment Corp also forecasts results that will surpass market expectations.

“BTS’s activities are scheduled to continue into the first half of next year,” said Park Jun-hyung, an analyst at SK Securities. “The rapid growth and monetization of younger IPs like &TEAM and KATSEYE will serve as factors that gradually reduce dependence on mega IP.” Analyst Ji In-hae added, “As HYBE’s crucial second-quarter earnings are expected to exceed market expectations, this will likely improve sentiment for the entertainment sector, led by HYBE, and present a buying opportunity for the neglected KOSDAQ-listed entertainment stocks.”

Meanwhile, there is advice that the qualitative aspects of the upcoming second-quarter earnings will be more important than the quantitative scale. “This earnings season, it is necessary to focus on the quality of the results rather than the quantitative figures,” emphasized Lee Hwa-jung, an analyst at NH Investment & Securities. “In particular, if we see confirmed, full-fledged growth in the music streaming segment, it could lay the groundwork for strong performance over the coming quarters.” Given that music streaming generates long-tail revenue once it gains traction, the growth rate in this segment during the second quarter is expected to be a critical variable for the entertainment sector’s rebound.

Stock Price and Market Cap Changes for the Big Four Entertainment Companies (Jan 1 vs. Jul 16)

CompanyStock Price DeclineMarket Cap DeclineSM Entertainment-47.80%-48.8%YG Entertainment-42.89%-42.1%JYP Entertainment-39.80%-35.7%HYBE-39.73%-36.0%

Target Price Adjustments for the Big Four Entertainment Companies

Securities FirmSM Ent. TargetJYP Ent. TargetHYBE TargetYG Ent. TargetNH Investment & Securities109,000–114,000 won77,000–83,000 won330,000–350,000 won61,000–64,000 wonKiwoom SecuritiesLoweredLoweredRecord earnings forecast-Samsung SecuritiesLowered–LoweredKB SecuritiesLowered—Eugene Investment & Securities-LoweredLoweredLowered

Note: Target prices are aggregated based on ranges provided by seven or more securities firms this month. Specific figures may vary by individual report.

With the entertainment sector’s valuations having fallen to historically low levels, a growing consensus on the Street suggests that the sector could overcome its excessive undervaluation and stage a rebound if the scheduled return of major artists and the performance of rookie lineups materialize in the second half of the year. However, some caution that short-term stock price volatility remains a risk, given the uncertain timeline for the resolution of the liquidity imbalance.