Finance Culture

BTS IPO: Historical Market Debut Followed by a Sharp Selloff

By Adriana Anastasiades Friday, October 16, 2020

Members of the popular Korean band Bangtan Boys, also known as BTS, have seen their management company make its much-anticipated initial public offering this week.

On the back of the huge popularity of BTS worldwide, the band’s management company has attracted a large number of investors despite coronavirus obstructing the music industry and live concerts this year.

Spectacular Market Debut

Big Hit Entertainment (KRX: 352820), which manages BTS, debuted at 270,000 won or $236.55 per share, two times higher than last month's 135,000 won ($118.27) initial public offering (IPO) price. As a result, the market valuation has been elevated to 10 trillion won ($8.76 billion) on a fully diluted basis.

Shares of Big Hit Entertainment skyrocketed 160% from its debut price to 351,000 won ($307.50), with the South-Korean benchmark index Kospi index falling 0.3% yesterday. Big Hit listed around 20% of the company.

The record label manages a number of popular artists and groups in South Korea, but none of them are nearly as popular as BTS, which generated 97% of Big Hit's sales last year and 88% this year.

The boy band was the Korean group to reach the top of the US Billboard Hot Singles with its song “Dynamite.” Before the IPO, BTS’s song “Savage Love” became their second-best performing hit on Billboard’s song charts.

The Korean boy band debuted in 2013 and consists of seven members: Kim Tae-hyung (V), Jung Ho-seok (J-Hope), Kim Nam-joon (RM), Kim Seok-jin (Jin), Park Ji-min, Jeon Jung-kook, and Min Yoon-gi (Suga).

The members of the band were already rich — the CEO of Big Hit Entertainment, Si-Hyuk, granted each performer nearly 68,500 shares in August, which translates to an $8 million stake. Si-Hyuk holds a 43% stake in the company, and he is estimated to be worth around $1.4 billion.

Individual investors, many of them fans of the boy band, hurried to buy at least one share of Big Hit in the largest initial public offering in South Korea in the last three years.

Reuters reports that a retail worker in Korea took a loan and invested 100 million won, or $87,587.

"I waited until [2 p.m.] this afternoon to subscribe because I wanted to choose the arranger with less competition for bidding," he said.

Sharp Correction Today

However, it appears that such a level of success for Big Hit has been too good to be true as shares of the record company plunged 23% today. The label’s stock has slipped from its debut price prior to yesterday’s closing.

According to analysts, the current price of the stock looks more rational and is predicated on the fundamentals of the label that is so heavily dependent on a single K-Pop group.

They also said that the company’s valuation based on its original IPO price of 135,000 won ($118.27) per share was similar to rival label companies, including SM Entertainment Co Ltd and JYP Entertainment Corp.

The stock price closed at 200,500 won ($175.61) Friday, which is nearly 43% lower compared to yesterday’s high. The brief surge in price was similar to the strong market debuts of other Korean companies like the one of SK Biopharmaceuticals Co Ltd July and Kakao Games Corp in September, as the so-called “Ant” retail investors in South Korea take advantage of the government economic boost which has injected massive amounts of cash into markets.

Still, companies like SK Biopharmaceuticals or Kakao Games Corp have more stable sources of revenue and see much less fluctuation in stock prices, compared to K-Pop record labels that depend on such a low number of artists, said analysts.

“Big Hit’s reliance on BTS is still absolute when including non-management, indirect sales such as merchandise, intellectual property and content,” said Kim Hyun-yong, an analyst at Hyundai Motor Securities.

“It must make all-out efforts to create a post-BTS revenue source.”

Summary

Big Hit, the company that manages South Korean pop band BTS, doubled its IPO price in their official market debut. Big Hit share price first rallied sharply before correcting almost 43% lower to close near the lows in its second trading day.

About the Author


Headshot for author Adriana Anastasiades

Adriana is a Journalist with a passion for reporting on business leadership, with a diverse interest in multiple industries.

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