SM Entertainment's net falls 10% on year to ￦23B in first quarter

SM Entertainment’s net profit fell 10 percent on year to 23 billion won for the first quarter earnings this year due to a reverse base effect from the one-time profit in the same period last year. The one-off profit was due to selling off real...

SM Entertainment's headquarters in Seongsu District, eastern Seoul [NEWS1]

SM Entertainment’s net profit fell 10 percent on year to 23 billion won ($17.3 million) for the first quarter earnings this year due to a reverse base effect from the one-time profit in the same period last year.

The one-off profit was due to selling off real estate of SMT Lounge last year, which was part of the K-pop agency’s move to concentrate on its core music businesses.

The first quarter figure exceeded the market consensus of 19 billion won compiled by FnGuide.

Sales jumped 20.3 percent to log 203.9 billion won, beating analyst expectations of 200.6 billion won.

Offline sales increased as concerts resumed and sales for related licensing and merchandise grew. Fifty-five concerts were held in the first quarter, compared to zero during the same period last year. Sales made from concerts consequently skyrocketed 155.9 percent.

Operating profit shrunk 5 percent to 18.3 billion won, missing market expectations of 21.1 billion won.

The drop is due to the decrease in digital music and album sales, which dropped 6.1 percent on year to 59.6 billion won. Profits were also hit by the management conflict over SM Entertainment between Kakao and HYBE, with the former having spent 4.9 billion won.

"The cost over management issues is due to various activities we promoted to support our claims to start our SM 3.0 project, such as opening the website Save SM 3.0," a spokesperson from SM Entertainment commented.

The second quarter will reflect more offline activities among SM artists as the Covid-19 pandemic continues to dwindle. Girl group Red Velvet began its world tour “Red Velvet 4th Concert: R to V” from April in countries such as Thailand and France. Girl group aespa is hosting “aespa Live Tour 2023 ‘SYNK: Hyper Line’” in Japan and Indonesia until June 24. Boy band TVXQ is hosting “Tohoshinki Live Tour 2023 ~ClassyC~” in Japan until June 25. NCT Dream and Taeyeon will each host solo concerts in Korea next month.

In the third quarter, artists such as Wendy, Onew, Key, Taeyeon, NCT and D.O. will release EPs or albums, and two new K-pop groups are scheduled to debut.

SM Entertainment’s earnings will be reflected in tech company Kakao’s earnings from the second quarter as the K-pop agency is now a consolidated subsidiary.

Kakao acquired a 39.87 percent stake in SM Entertainment and is the largest shareholder of the K-pop powerhouse. Kakao and SM Entertainment have been announcing plans to collaborate together on their businesses related to music and intellectual properties.

BY LEE JAE-LIM [lee.jaelim@joongang.co.kr]