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BTS' Label, Big Hit Entertainment: A Closer Look at the Upcoming IPO

Source: Big Hit Entertainment

Big Hit Entertainment, the company behind global K-pop sensation BTS, is set to launch its initial public offering (IPO) on October 5 and 6, with plans to issue 7.13 million new shares.

The South Korean entertainment giant aims to raise KRW 963 billion (US$809 million) by listing 21% of the company on the South Korean stock exchange.

However, some analysts argue that the offering price, which ranges from KRW 105,000 (US$89.40) to KRW 135,000 (US$114.95), may be too high, given the growing risks in the country's entertainment industry.

Comparing the price-earnings ratio (PER) of major South Korean entertainment companies, Big Hit Entertainment's PER is 72, while the average for major companies is 71.

Despite these concerns, many believe the IPO will be successful due to South Koreans' enthusiasm for stock investing.

One significant risk for Big Hit Entertainment is the mandatory military service for BTS members. In the first half of 2020, 45.2% of total revenue came from music label sales, with BTS contributing 72%.

Starting in 2021, BTS members will serve in the South Korean army for 1.5 years. As a result, the company's key to success lies in diversifying its business model.

According to its registration statement, Big Hit Entertainment's strategic direction includes advancing the music industry value chain, implementing a storytelling-based marketing strategy, and expanding as a platform.

In June 2018, the company established beNX as a spin-off from its platform business division, intending to compete with Naver Music and Kakao Melon.

Weverse, Big Hit Entertainment's independent platform, has become a significant revenue generator.

As of September 2020, it had an average of 1.4 million daily users and 11 million user-generated content.

The platform's revenue from online channels grew from KRW 3.1 billion (US$2.6 million) in 2019 to KRW 16.6 billion (US$14 million) in the first half of 2020.

Weverse is also expanding to include non-big hit artists, such as FNC Entertainment's P1Harmony.

During the COVID-19 pandemic, BTS hosted a paid online live concert via Weverse, demonstrating the platform's potential for revenue growth through innovative solutions for offline events. Despite the risks, conservative analysts predict Big Hit Entertainment's share price could reach around $200.