Investing in boy bands: incredibly popular, but ‘very risky’

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The music company made less than 80 million euros in profit last year, but it comes with a price tag of about 4 billion euros. The interest was enormous: demand was 1100 times greater than the number of shares offered.

And those are not even the fans of the music who are eager to buy a piece of the stock. It is the institutional investors who have bought in, such as pension funds and other large investors. They expect a lot from the company behind the cheerful music.

What is that K-pop?

Literally: Korean pop. A music genre from South Korea that consists of a mix of different styles. Think of hip-hop and pop music, for example. K-pop’s international breakthrough is due to rapper Psy. In 2012 he had a big hit with Gangnam Style.

Boy band BTS is currently conquering the charts worldwide. They even rank number 1 on the Billboard Hot 100, the most important US music chart.

Corona proof

Investors see it all in the company, especially in the boy band BTS. That is the most successful band from the stable of Big Hit Entertainment. Even in corona time, BTS makes money, even though it can no longer play for sold-out theaters. The band members have come up with something for that: corona-proof performance.

A concert of the band in June was available online. More than 750,000 people paid for that virtual performance. With that, the concert went down in the books as the largest online music event in the world.

Beautiful achievements, yet analysts are critical of this investment. Actiam analyst Corné van Zeijl calls it ‘very risky’. According to him it is too specific. “The company focuses on one type of music. When the hype is over, the company is not worth much anymore.”

Relationships lost

The online concept is a smart move, according to Van Zeijl, but you cannot do that continuously. At most a few times a year and then you are done with the revenue model again.

He also finds the appreciation ‘very special’, he says with a laugh. “It is not special that companies go public, but for this value. The proportions are lost.”

Stan Westerterp of JNVB Asset Management agrees. “Investors in Asia are traditionally gamblers. They don’t look at stocks like we do here. So not at the price / earnings ratio, at the cash flow. If it looks nice, then they buy it.”

Emotion

A danger for the private investor, in this case especially the ordinary fan who will soon also be able to buy a share. “If things go wrong, they run to the exit and you end up with your share that is worth much less,” said the asset manager.

A share is therefore risky and very expensive. Then why is it bought? According to the two analysts, this has everything to do with emotion. “I understand somewhere that they want to buy it. It’s nice to have. An emotional share, such as the Ajax share,” said van Zeijl.

Renowned artists

Because there are probably fans who would like to have a piece of the company, or rather: the parents of fans. “You can then tell your children that you have invested in BTS, the band they like so much. But you don’t have to do it for the return,” continues van Zeijl.

According to Westerterp, it is smarter to invest in a media company like Vivendi. “A media company that has regained an interest in Universal. All of that has renowned artists under management, who have guaranteed success and income for decades. Less risk.”

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