SM Entertainment trims 2025 revenue goal by 22% after Q4 2023 revenue falls 3.4%

Jang Cheol-Hyuk, the CEO of SM Entertainment

South Korea-based K-pop giant SM Entertainment has scaled back its ambitions for 2025, following a lukewarm final quarter in 2023.

The company, home to K-Pop stars like SUPER JUNIOR, Girls’ Generation, SHINee, EXO, Red Velvet, KANGTA, BoA, TVXQ!, NCT and aespa, reported a 3.4% YoY drop in revenue in the Q4 2023, to KRW 250 billion (USD $189.3 million at the average exchange rate for the quarter) from KRW 258.8 billion.

On a quarter-over-quarter basis, revenues were also down 6.1% from KRW 266.3 billion won ($201.6 million) in Q3 2023, according to a presentation released last week (February 7).

The slowdown is mainly attributed to reduced concert sizes and “slow business conditions” impacting advertising and content-related subsidiaries. 

SM’s ‘MD/Licensing’ segment suffered an 18.5% YoY decrease in revenue in Q4 to KRW 33.7 billion won ($26.3 million) from KRW 41.4 billion in Q4 2022 as concert-related MD/licensing revenue decreased. This largely offset the 59% YoY jump in revenue from SM’s ‘Concert’ segment to 11.9 billion won ($9.3 million).

The surge in concert-related revenue came as SM resumed live concerts from the second half of 2022, while performances of its artists at home and overseas continued to grow in the fourth quarter.

SM Entertainment CFO Jang Jeong Min noted in a presentation following the release of the Q4 results that NCT WISH carried out pre-debut activities as NCT NEW TEAM since September 2023, completing a 24-show pre-debut tour in nine cities across Japan. The Seoul leg of NCT 127’s third world tour NEO CITY – THE UNITY, which kicked off in November 2023, attracted a total of 60,000 audience members.

“Our company had established a goal to achieve 1.4 trillion won in revenue and 240 billion won in operating profit by 2025, in consolidated basis.”

Jang Cheol Hyuk, SM Entertainment

Jang Jeon Min added that SHINee’s Asia tour was also held in Q4, attracting a total of 80,000 audience members in Japan.

The executive also stressed that concert business revenue increased YoY “due to the base effect caused by COVID-19 last year.” However, on a quarter-over-quarter basis, revenue from concert sales slumped 51.3% “due to the decrease in large-scale concerts.”

The company’s artists have at least 41 concerts lined up for January to March, aiming to boost the group’s concert business. These events include Minho’s 2024 Best Choi’s Minho Fan-Con in Korea, the continuation of NCT 127’s NEO CITY – THE UNITY, SHINee’s Shinee World VI [Perfect Illumination] concert in Japan, and Taemin’s solo concert, Metamorph, in Japan.

Elsewhere, revenue from the company’s ‘Album/Digital Music’ division jumped 7.2% YoY to KRW 90.6 billion won ($70.7 million) from KRW 77 billion, after SM artists sold a combined 5.51 million albums, driven by strong sales of new releases.

SM’s revenue from TV, ad and events appearances edged up 6.3% YoY to KRW 26.8 billion ($20.9 million) from KRW 25.2 billion last year.

Overall, the company’s OP margin shrank to 4.4% in Q4 from 8.8% in the year-ago period, and from 19% in Q3 2023. Its operating profit tumbled 51.7% YoY to KRW 10.9 billion won ($8.2 million) from KRW 22.7 billion. As a result, SM swung to a consolidated net loss of KRW 19.7 billion ($14.9 million) versus a consolidated net income of KRW 1.9 billion won a year earlier.

In response, SM Entertainment adjusted its revenue and profit targets for 2025.

“Our company had established a goal to achieve KRW 1.4 trillion in revenue and KRW 240 billion in operating profit by 2025, in consolidated basis,” said CEO Jang Cheol Hyuk.

“We have revised our investment plan until 2025 in line with our mid-to-long term business plan. We plan to make a total investment of 500 billion won across 4 areas including: expansion of publishing capabilities, label acquisition, global expansion, and virtual IP.”

Jang Cheol Hyuk, SM Entertainment

The target is down 22% from its KRW 1.8 trillion 2025 revenue target and its profit goal of KRW 500 billion issued last year.

“We have revised our investment plan until 2025 in line with our mid-to-long term business plan. We plan to make a total investment of KRW 500 billion across four areas including: expansion of publishing capabilities, label acquisition, global expansion, and virtual IP,” said Jang Cheol Hyuk.

Jang Cheol Hyuk addressed recent reports about Kakao looking at selling its stake in SM and potentially replacing executives. He called the rumors “noise,” saying: “We are in an environment where our normal business progress is inevitably affected to some extent.”

“Based on the judgment that if left unattended, this could lead to damage of our company’s value, we decided to issue a statement on February 5.” the executive said.

That statement asserted that the rumors about Kakao Corp. selling its stake “are not true.”

“Several media outlets reported that top-level executives might be replaced, but Kakao is not considering doing so — we have effectively communicated with Kakao regarding the matter,” SM said in the statement cited by Korea JoongAng Daily.

“Kakao, Kakao Entertainment and SM Entertainment are opting for co-growth and to collaborate on businesses to create synergies, even to this moment,” SM Entertainment added.

In August 2023, SM and Kakao disclosed plans to launch an integrated North America division that would merge their units in the region. The partnership follows Kakao’s acquisition of a majority stake in SM in March 2023.

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