• Three of the "Big Four" K-pop agencies have seen posted downbeat third-quarter results, mainly due to poor album sales.
• All agencies have seen a double-digit decline in their stock performance so far this year.
• Citi forecasts a financial recovery in 2025 to 2026, with Hybe and SM Entertainment as their top picks.

K-pop businesses mostly continued to struggle in the third quarter of the year, with three of South Korea's four largest agencies posting poorer financial results compared to last year.

The K-pop industry has been seeing a slowdown due to declining album sales and the inactivity of record-breaking groups such as Blackpink and BTS. Members of BTS have been serving their mandatory military service, while Blackpink only announced to reunite as a group in 2025.

Streaming revenue, at least during the first half of this year, has been unable to cover the loss from album sales.

Shares of SM Entertainment, JYP Entertainment and YG Entertainment, listed on the small-cap Kosdaq have lost 16%, 43% and 10.41%, respectively so far this year, while Hybe, listed on the blue-chip Kospi, has seen its stock drop over 11% year to date.

Here's how the "Big Four" K-pop companies fared in the third quarter:

Hybe, the largest K-pop company by market cap, did not detail the reasons for its downbeat earnings, but a Nov. 6 note issued by Yuanta Securities analyst Hwan-wook Lee said sales shrank due to limited artists and activities during the 2024 Olympics, while profitability was also hurt by higher costs owed to the launch of KATSEYE, a localized group in the U.S.

SM Entertainment CFO Jang Jeong Min said during the company's earnings call that revenue decreased due to a decline in album sales, while operating profit was also weighed down by production costs of a debut program and weaker earnings from subsidiaries.

Samsung Securities analysts Minha Choi and Yeonghoon Kang said in a Nov. 11 note that YG Entertainment's operating loss was "not surprising," as the company's artists were relatively "inactive." For the third quarter, just Babymonster — a rookie group — and solo artist Lee Seunghoon released material.

JYP Entertainment was the lone bright spot in the industry, as it saw a "dramatic rebound to profitability" and threw an "earnings surprise," according to a Nov. 14 note issued by NH Securities. The note said this was due to "full-fledged" activities by boy group Stray Kids, which kicked off its world tour in the second half of 2024.

Recovery in sight?

While K-pop investors might want to put 2024 behind them, given dismal year-to-date stock returns and largely poor financial results, they can look forward to 2025, research firm Citi Research suggests.

Citi analysts John Yu and Alicia Yap said in a note earlier this month that they are "turning constructive" on the sector, as its revenue was set to accelerate.

On a year-on-year basis, Citi expects that the aggregate revenue of the Big Four agencies to grow by over 21% in 2025 and nearly 15% in 2026.

Return of top groups BTS and Blackpink and improved monetization of fandom platforms will help shore up revenues, according to Citi.

For example, DearU, an SM subsidiary and in which JYP has an 18.1% stake, has tied up with Tencent Music to provide its direct messaging service to users of Chinese music-streaming platform QQ Music.

DearU is a fan communication platform known for its Bubble messaging service, where fans pay a monthly subscription fee to receive exclusive messages from artists.

Hybe's Weverse platform, which specializes in hosting artists' content, is also launching a new subscription membership model in December.

Citi analysts state that the return of popular groups "will do more than just drive album and concert revenues — it should also boost ROI across multiple businesses. Fandom platforms, for instance, will see an increase of user traffic, and younger artists under [the] same labels can showcase opening acts at top artists' concerts."

A foreign exchange tailwind is also expected due to the weakening of the Japanese yen, with Citi expecting JYP to benefit most due to its relatively higher revenue exposure to Japan.

The firm is more optimistic on Hybe and SM, although the analysts say they prefer Hybe for its balanced IP portfolio, as opposed to SM, which is more dependent to China momentum due to the nationality of its artist line up.

As for YG, they call it a "high delta play" — which means the stock can see large swings — with the return of Blackpink.

The analysts, however, are downbeat on JYP, and say that the company will face a challenge in maintaining long-term growth as newer artists struggle to find success.

Citi's optimism also echoes reports issued earlier this year.

In March, Goldman Sachs said that the K-pop sector is "misunderstood." At the time, Goldman argued K-pop companies should be evaluated not by album sales, but instead by offline concert audiences, and forecast a "high potential for valuation re-rating."

Goldman said there was a substantial fanbase growth opportunity for K-pop companies in the near-term in Japan, and is also bullish about the growth of the global fanbase, especially in the U.S.

The firm said that K-pop is becoming mainstream globally, with artists performing in major U.S. festivals like the Coachella Festival and Lollapalooza — there's "a long runway of growth ahead" for the sector.

Morgan Stanley also wrote in a note earlier this year that K-pop was "on the verge of expanding its global fan base."

"After more than 20 years of cultivating a devoted following in Asia, the South Korean pop music phenomenon is poised to take a leap into the mainstream, generating investment opportunities in the process."