SM Entertainment’s stock rises as executives announce solid first-quarter results and plans for major acquisition in North America

SM’s EXO-M. Photo credit: Luhan Please

After sidelining (mostly) a high-profile ownership dispute with Hybe, K-pop agency SM Entertainment has announced that it posted double-digit year-over-year revenue growth in the opening quarter of 2023.

Headquartered in Seoul, SM Entertainment is the professional home of acts such as Aespa, Super Junior’s Sungmin and Exo’s Kai, recently published its financial figures for the first quarter of 2023. The performance analysis is the first the company has released since it (and Kakao, which now owns a significant stake in SM) fended off a high-risk takeover bid by Hybe.

Though SM and Hybe pulled out all the stops at the height of the showdown, they’ve publicly signaled that they’ve gotten over the dispute, and the former’s artists are poised to join the latter’s fan interaction platform WeVerse. Hybe, in turn, had previously indicated that it would sell the entire SM ownership interest it had acquired.

Coming back to SM Entertainment Q1 2023 results: Dream Maker Entertainment and ScreaM Recordings The parent company said it had generated 203.9 billion yen ($151.98 million at current exchange rates) in the quarter — up about 20.3% year over year but down about 21.2% compared to the previous quarter (QoQ).

Behind that total, SM admitted year-over-year declines in “standalone” albums and digital revenue (59.6 billion yen/$44.40 million, down 6.1% year-on-year and 22.7% qoq) and in in the Other category (2.0 billion yen/US$1.49 million, down US$88.6 million) a% YoY). (The first quarter of 2022 had brought a ₩15 billion/US$11.17 million “unique” windfall to others, according to CEO Jang Cheol-hyuk, and the first quarter of 2023 brought album sales of 3.48 million units, including 2.15 million units for new releases.)

But royalty revenue is said to have improved 67.4% year over year to ₩29.3 billion/$21.83 million, despite a 28.8% sequential decline compared to 16% growth .1% compared to the previous year in appearance sales (₩18 billion/US$13.41 million).

SM’s largest single-side profit – that is, in key categories, but excluding a portion of the revenue from its various subsidiaries and holdings – came from concerts held in January, February and March, according to the document, 19.2 billion yen/14.30 brought in millions of dollars. The total represents a notable quarterly improvement of 155.9% and a significant increase of 2,642.9% year-on-year, derived from a total of 55 concerts per manager.

Rounding out its standalone operations, SM identified SG&A expenses of 30.1 billion yen/US$22.42 million (up 4.4% year-on-year but down 5.8% sequentially due to ” one-off costs related to the handling of management rights disputes”) and 18.7 billion yen/ net income of $13.93 million (down 9.7% year-on-year but up 134.3% sequentially ).

Interestingly, Jang Cheol-hyuk (who was promoted from CFO to CEO in early 2023) didn’t hesitate to confirm that his company and Kakao are planning to break through in North America, where Hybe bought Quality Control in February, with a potential acquisition.

“We are discussing strategies for entering North America with Kakao Entertainment,” the CEO said when asked about his expansion plans, according to a Korean translation of his remarks. “We are considering an acquisition, although it is still difficult to disclose details.”

Turning to the presentation of its major subsidiaries, SM identified 26.7 billion yen/$19.88 million SMC₩22.3 billion/US$16.61 million from the aforementioned Dream Maker, ₩21.4 billion/US$15.94 million from Culture & Content₩21.1 billion/US$15.71 million from others, ₩19.3 billion/US$14.37 million from others KeyEastand ₩5.3 billion/US$3.95 million from Tokyo-based SMEJ Plus. Collectively, these holdings are reported to have brought SM ₩3.8 billion/$2.83 million in net income for the first quarter of 2023.

(“You can feel the tremendous popularity in Japan,” Jang Cheol-hyuk said during his company’s first-quarter results conference call, citing concert attendance figures in the country of about 126 million people and interest in upcoming performances of Aespa at the Tokyo Dome.)

Elsewhere in the brief earnings breakdown, SM highlighted his artists’ numerous upcoming tours and releases in addition to his television and film projects. As the market closed today, the company’s stock (KOSDAQ: 041510) was worth ₩109,200/$81.33 per share, up 6.54% from Monday and up 45.21% since the start of 2023.