Hybe Co Ltd

KRX:352820

Q2-2025 Earnings Call

[Operator]

Good morning, and good evening. Thank you all for joining the conference call for the HYBE earnings results. This conference will start with a presentation followed by a Q&A session. [Operator Instructions]

Now we will begin the presentation on HYBE's Second quarter of fiscal year 2025 earnings results.

[Unknown Executive]

Greetings. Thank you for joining us for HYBE's 2025 Second Quarter Earnings Call. This is [ Jinwoo Kim ], Head of Financial Strategy. I'll be moderating today's conference, which will proceed through consecutive interpretation.

Today, CEO, Lee, Jaesang, will present Q2 business highlights and future plans and CFO, Lee, Kyung-Jun, will present the earnings highlights, followed by a Q&A session.

Please note that today's earnings call is based on preliminary consolidated estimates under K-IFRS and subject to change during the external audit.

[Jaesang Lee, executive]

Good afternoon. This is Lee, Jaesang, CEO of HYBE. Thank you for joining today's earnings call. Last year, in August, we announced the HYBE 2.0 strategy in our letter to shareholders to present our new vision for growth. One year has passed since then, and we are making meaningful change under the 3 pillars of music, platform and technology-based growth business.

First, in the music domain, we've been accelerating the global strategy while remaining focused on the fundamentals of content quality and fan experience enhancement. Along with the return of all BTS members, HYBE Music Group artists such as Seventeen, Tomorrow X Together and ENHYPEN are active in the global market with album releases and tours. At the same time, KATSEYE success in the U.S. demonstrates that the K-pop methodology is applicable to other genres.

In Latin America, we are employing the HYBE approach through the Pase a la Fama project and the Santos Bravos project. Thanks to these achievements, HYBE posted the highest second quarter revenue. In the platform domain, Weverse is strengthening competitiveness as a global superfan platform by onboarding Japanese top-tier artists and expanding membership-based services.

For technology-based business, we are exploring how to innovate fan experience using technologies such as voice AI and gaming and conducting R&D to realize futuristic entertainment. HYBE will continue to lead the paradigm of the global music industry and innovate the way fans and artists are connected under HYBE 2.0 vision.

Our strategic approach is well reflected in our quarterly performance. Based on the global strategy, HYBE's produced strong results in the music market, and various activities by HYBE artists drove revenue growth.

Let me first present album-related results. BTS Jin came out with his second mini album Echo entering the Billboard 200 at the career high #3, proving his growth as a solo artist. Seventeen came back with their third regular album Happy Burstday, which became the best-selling album in Korea in the first half of the year and ranked second on the Billboard 200, showing their global popularity. The album also topped the Oricon weekly total album chart, achieving the 14th #1 status, the most by a foreign artist as well as topping the weekly digital album chart and weekly album chart, which means that Seventeen ranked first on all 3 weekly -- Oricon weekly charts.

Tomorrow X Together's fourth regular album, The Star Chapter: Together, sold 1.76 million copies during the first week, surpassing the first week sales result of their previous album, making it the sixth consecutive album to sell more than 1 million copies during the first week. In Japan, with more than 300,000 copies sold, it achieved the highest result on the Oricon weekly album chart, making them the first foreign artist with 12 consecutive albums topping the chart.

ENHYPEN came back with the sixth mini album, DESIRE: UNLEASH, after 7 months to achieve the first week's double million seller, which landed on the 3rd place on the Billboard 200 and stayed on the chart for 6 weeks in a row. The group solidified their influence in the global music market with the entry into 4 billboard charts and #1 in 6 categories of Oricon charts.

LE SSERAFIM's fourth Japanese single, DIFFERENT, topped the Oricon daily chart and ranked second on the weekly chart with more than 130 copies sold. The album was also gold certified by the Recording Industry Association of Japan.

Going into their third year into career, Boynextdoor achieved the highest first week sales with their fourth mini album, No Genre, maintaining a strong growth trend in the global market, with high rankings on the Billboard and Oricon charts. [Audio Gap]

Moving onto streaming. The share of streaming the recorded music revenue in the second quarter is around 32%, suggesting that music by HYBE artists continue to be streamed globally. In particular, j-hope, who just completed a solo world tour with an encore show in June, and Jin, who is currently on a tour with global fan concerts, have their new songs enter the Billboard Hot 100. These results demonstrate that fans from around the world are highly excited and looking forward to the comeback of BTS as a whole. Since debut in Japan in July, TWS debut as a single, Nice to see you again, ranked 1st on 2 Oricon weekly charts and topped the Billboard Japan Hot 100.

In the U.S., Big Machine Label Group artists achieved solid results centered on streaming, making meaningful contributions to HYBE's earnings. Thomas Rhett's song, Die a Happy Man, has been certified Diamond by the RIAA, signifying 10 million units sold, including physical album copies, digital downloads and streams. This is the highest certification in the U.S. music industry, showing the popularity and influence of Thomas Rhett. In addition, Get Me Some of That is quadruple Platinum certified. And Somethin' 'Bout A Woman is Gold certified, further solidifying the artist's position in the U.S. country music market.

Riley Green also did well with his song Worst Way topping the U.S. Country Radio Airplay chart. His catalog received a Pandora Billionaire award with more than 1 billion streams on Pandora, one of the most influential streaming platforms, demonstrating his strong performance in the local streaming market. HYBE will continue to optimize its portfolio of domestic and global artists to strengthen its position in the global streaming markets and sustain long-term growth.

Moving on to concerts. HYBE artists conducted world tours and fan meetings in the second quarter to reach out to their global fans. In particular, j-hope performed 33 shows in 15 cities from February until June to entertain 0.5 million fans, showcasing stage power and musical talent as a solo artist. He also performed as the headliner on the main stage of Lollapalooza Berlin for about 60,000 people in the audience.

Jin kicked off his tour in Korea in June and is on a fan concert tour in 9 cities in Japan, the U.S. and Europe.

Hoshi and Woozi of Seventeen successfully completed their unit concert, demonstrating the possibility of a unique concert as a new concert format. Seventeen will embark on a world tour in September.

LE SSERAFIM sold out their first Asia tour and confirmed an encore tour -- encore concert at Tokyo Dome in November, which is expected to serve as an important momentum to expand the fandom and solidify their position in the Japanese market.

Following the Japanese stadium tour, ENHYPEN is preparing for a tour in 10 cities in the U.S. and Europe, and they also performed at Coachella.

After a successful first solo tour, Boynextdoor participated in Lollapalooza Chicago to expand their global influence as well. In addition, Tomorrow X Together, ILLIT and TWS continued their concerts and fan meetings from around the world to grow their fandom.

As a result, in the first half of 2025 HYBE Music Group artists held a total of 140 concert shows and fan meetings, up 56% year-over-year. With large tour scheduled for the second half of the year, we expect the concert business to continue to grow.

Moving on to our U.S. business. HYBE has recently adjusted strategic directions of HYBE America and implemented organizational restructuring. It is not a short-term change, but a strategic decision to add more clarity to the direction of our U.S. business based on the experience and insights that we have gained from diverse business activities in North America for the past 4 years.

In short, it is about shifting our business focus to label business. Given that earnings from management business tend to fluctuate depending on the level of activities by artists, we would like to strengthen the label business to generate stable earnings based on streaming, thereby improving profitability and business fundamentals.

Considering that HYBE's multi-home, multi-genre strategy is producing meaningful results in North America, we believe that this shift makes sense strategically. Furthermore, the restructuring is not just about changing the organizational structure, but it is about creating synergies between regions by integrating the operations of HYBE America and HYBE Latin America.

Going forward, based on L.A. and Mexico City, HYBE plans to create a structure where IP and solution businesses in North America and Latin America are organically connected to further strengthen and broaden our global business. At the center of this change is Isaac Lee, a new Chairman, who has extensive experience in the global content industry, with an in-depth understanding of the music and content markets in North and Latin Americas and have strong execution power. Chairman Lee is expected to accelerate the implementation of HYBE's global IP expansion strategy. Meanwhile, former CEO Scooter Braun, who led U.S. business growth, will continue to provide strategic advice as a Board member and non-standing adviser for HYBE America.

The most iconic example that shows that HYBE's global strategy is working is KATSEYE. During the first week -- year since debut, this rookie girl group has produced impressive results, not just in North America, but around the world. Their EP, Beautiful Chaos, released in the second quarter, was on the Billboard 200 for 3 weeks in a row and Gabriela and Gnarly both entered the Hot 100, clearly indicating their popularity in the mainstream pop market. The 2 tracks also entered the official charts in the U.K. and ranked high on the Spotify global chart, enjoying much popularity in Latin America and Europe as well.

Building on this momentum, KATSEYE announced their first tour scheduled to be held in 13 cities in North America, and all the shows were sold out. And thanks to this explosive response, they added additional shows, but tickets were also sold out quickly. The popularity of the tour demonstrates KATSEYE's exclusive fandom growth and strong market position.

These achievements represent not just the success of a single group, but an illustrative example that HYBE's production system and approaches are applicable to other languages, cultures and genres. Based on this success, HYBE will apply its K-pop methodology in other regions and genres as well.

HYBE's production capabilities are being applied in Latin America as well. HYBE Latin America is making new attempts in combining originality of Latin music and K-pop production methodology to accelerate strategic expansion in the global music industry. First, Pase a la Fama, a reality series, produced in partnership with Telemundo, premiered in prime time in June and received much attention from local viewers being the top-rated Spanish language program in its time slot.

In addition, HYBE is taking steps to launch a new project titled Santos Bravos to produce a next-generation Latin boy group. This reality show features talents from 8 Latin American countries. It is a new initiative to apply K-pop training and production systems to Latin talent. The program is taking a different addition format by focusing on illustrating the emotions and stories of individual hopefuls to show that the production know-how of HYBE, can work across linguistic and cultural boundaries.

This new group to be formed through Santos Bravos is going to be another expansion model of K-pop production. Given the Latin music is the fastest-growing genre in the world, what we achieve in this market will serve as an important milestone in HYBE's global strategy.

In addition to these production projects, HYBE Latin America is quickly broadening the foundation for label and management business by attracting local Latin artists. Recently, HYBE Latin America signed deals with several artists, including Morat, a Latin pop band, and Daddy Yankee, who became globally popular with the song titled Despacito, which shows that HYBE is becoming a preferred partner for Latin musicians who wish to expand their global horizon. It means that they choose to work with HYBE as a strategic partner for global expansion because of HYBE's capabilities and global networks.

As more and more foreign artists are taking interest in the Asian market, we are recognized as an ideal partner that has content planning power, platform operational expertise and well-established global label business. It is a strong signal that HYBE is more than just a production company, but a significant player in the global music industry that can continue to expand their business.

Finally, let me report on Weverse, the global superfan platform. In the second quarter, Weverse continued to strengthen its platform competitiveness by attracting global artists and enhancing fan experience. In Japan, several top-tier artists have joined Weverse and utilized the platform producing visible results. Weverse was joined by Mrs. Green Apple, a popular band in February; Actor and Singer, Katori, Shingo, a former member of SMAP in May; and 4 groups of KAWAII LAB., a next-generation project of Asobisystem in July.

Also, many Japanese artists are utilizing diverse Weverse services for their business. For example, Katori, Shingo, was the first foreign artist to collaborate with Weverse album for his first global album launch. Meaningful synergy was created as Weverse global logistics infrastructure supported the artist's desire to share his music with fans from around the world.

In addition, after opening Weverse DM, FRUITS ZIPPER of KAWAII LAB. is using Weverse global membership service for advanced ticket bills for the group's first concert in Korea. Weverse will continue to offer new experience to connect artists and their fans and strengthen its leadership as a global super fan platform.

[Unknown Executive]

Now, CFO, Lee, Kyung-Jun, will report on the financial highlights.

[Kyung-Jun Lee, executive]

Good afternoon. This is Lee, Kyung-Jun. Let me report on HYBE's consolidated financial results for the second quarter. The consolidated revenue posted KRW 705.6 billion, up 10% year-on-year. Revenue with direct artist involvement, including recorded music sales, concert, advertisement and appearances, was KRW 447.9 billion, accounting for 63% of the total revenue while revenue with indirect artist involvement, including merchandise, licensing, content and fan club sales, recorded KRW 257.8 billion, taking up the remaining 37%. This is thanks to the world tours by major artists such as j-hope, Tomorrow X Together and ENHYPEN. In the second quarter, we offered much entertainment to fans with comebacks, concert and fan meetings by many artists.

Let me give you more details by revenue category. In the second quarter, revenue with direct artist involvement grew further from the second quarter of last year when we recorded the highest quarterly result in this revenue category. Recorded music sales were down 8% year-over-year to KRW 228.6 billion, and concert sales were up 31% year-over-year to KRW 188.7 billion. HYBE was able to maintain a similar Y-o-Y trend of recorded music sales while the overall sales of K-pop albums were sluggish across industry. This is mainly thanks to the growth of HYBE Music Group artists and very good streaming performance by global artists.

The concert sales also maintained a strong growth trend on the back of large-scale tours, including j-hope's global solo tour and world tours by Tomorrow X Together and LE SSERAFIM, which were enjoyed by approximately 1.8 million fans from around the world in total.

Revenue with indirect artist involvement posted KRW 257.8 billion, up 19% Y-o-Y. Merchandise and licensing revenue recorded KRW 152.9 billion, up 40% year-over-year, while content sales were KRW 70.2 billion, down 16% year-over-year. Merch sales were driven by tour merch and light sticks associated with tours and IP-based character products. Content sales include NANA bnb with Seventeen, a reality comedy show as well as the group's DVD and video products.

In Q2, operating profit posted KRW 65.9 billion with the OP margin of 9.3%. While the margin improved Q-o-Q and Y-o-Y, we did not achieve a double-digit margin due to the investments in major markets to expand our IP portfolio in the process of executing the multi-home, multi-genre strategy.

First, the debut album by ON, a new band that debuted in Japan in the second quarter, produced meaningful results and topped the Oricon daily chart, but their short-term profitability was affected by initial marketing and activity-related expenses. It takes time for a new group to grow their fandom. So we believe that their profitability will improve gradually as this rookie group continues their career.

Also, the production cost of Pase a la Fama in Latin America had an impact on the Q2 margin. The show premiered in June, and the production costs were partially recognized in Q2. This project represents a first strategic step in applying the K-pop methodology to Latin music production for global business expansion.

We believe that profitability will continue to improve after the team's debut through concerts, merchandise, content and other revenue streams. The cost structure of Q2 does not represent short-term performance, but reflects our effort to solidify a foundation for long-term growth and HYBE 2.0 strategy implementation. And when these investments lead to visible results, you will be able to see that our business competitiveness and growth potential has been strengthened.

Moving on to KPIs of Weverse. The platform maintained a solid growth trend with the average MAU of approximately 10.9 million in the second quarter, thanks to the comeback of BTS members after military service and by diverse global activities by artists on the platform. In June, when all the BTS members returned, we hit the highest MAU mark of 12 million.

Weverse has been strengthening its platform capacity and features while maintaining a solid MAU trend of around 10 million. On the back of the stable traffic flow, the return of BTS added a strong growth momentum to the platform to achieve the highest MAU level. Also, Q2 total transaction volumes on the platform grew 41% Q-o-Q. Consumption grew, thanks to album releases by major artists as well as tours and fan events, resulting in an increase in the monthly average, monthly revenue per paying user.

The first half of 2025 was a turning point in transforming HYBE's multi-label strategy into the multi-home, multi-genre strategy. Going beyond K-pop, the success of KATSEYE in the global pop market is a prime example that HYBE's production methodology can work across different languages and cultures. Based on this success, we are moving ahead with new projects in Latin America and preparing for new market entries, including India to further expand our global influence.

HYBE will continue to offer entertainment to fans from around the world in the second half of the year focused on innovating high artists and fans are connected. We ask for your continued interest and support for our journey towards sustainable growth.

This is the end of the presentation. Now, we would like to take questions.

[Operator]

[Operator Instructions] The first question will be provided by Hyok Joong Lee from Daiwa Securities Capital Markets, Korea.

[Hyok Joong Lee, analyst]

I'd like to ask 2 questions related to your business in North America and Latin America. In the case of K-pop training and production systems in Korea, the contract periods tend to be longer so that expenses and costs related to production and training can be recruited later during the period of the contract. I'd like to understand the differences in contracting practices in Korea versus Latin America and the U.S. and how you're planning to overcome any limitations that come from different contract structures.

The second question is that you mentioned that the business focus of HYBE America will shift more from the management to a label business. So what is the differentiated competitiveness of HYBE America compared to the existing labels in the U.S. market? And what kinds of investments are you planning to do to become a competitive label in that market?

[Jaesang Lee, executive]

Thank you for your question. I'm CEO. Let me answer your first question. You, basically, like to understand the differences between K-pop business models and those in the U.S. and Latin America and how we're going to respond to them. So I'd like to give you explanations in terms of differences in production methodologies, differences in contract structures and also differences in business practices.

First, about production methodologies in the K-pop and J-pop industries, it is common that you acquire talent and train them so that they can continue to generate profit. But you may think that this is not prevalent in the U.S. or Latin America. But when you think about it, such a model was quite popular in these markets as well. About 20, 30 years ago, we had Backstreet Boys, Westlife, NSYNC and other groups. However, because of the several financial crisis, there was reluctance in these markets for massive investments to make and develop talented musicians because many financial and strategic investors were hesitant to make large investments because of the low possibility for returns on their investments due to financial situation. So such a model became almost disapparent in these markets.

But now, we're going to reapply this type of methodology in these major music markets. And so I'd like to say that the environment in the U.S. is quite favorable for our approach, where we identify and discover good talent and train them and develop their skill sets. So we are applying a similar audition and similar training methodology that we've been using in Korea and Japan to the U.S. and Latin American market. Of course, music genres are different, but we're basically exporting our production methodology. And we have a global pool of trainers who will train and develop these talents.

And secondly, regarding contractual differences in Korea and also in Japan, many major management companies signed comprehensive contracts, including management, agency, merchandise, label, recording deal as well as distribution and publication. So such comprehensive contract practices are common in the U.S. -- in Korea as well as in Japan.

However, in the U.S., Europe and Latin America, these types of contracts are rather broken into separate contracts, for instance, recording deals and distribution deals for label businesses. And there's promotion companies for tour-related work, and there are also agencies for business connections. And merch is another type of contract. And this is because the European and the North American and Latin American markets are very big in size, and they have a longer history.

So within such contract practices, we've been thinking about the kind of structure that we will pursue. So it's not going to be exactly the same as what we have in Korea and Japan, but we're applying a similar economics because we have 4 to 5 years of experience in conducting business in the U.S. and also in Latin America. So it may not be as comprehensive as what we have in our local markets, but we are recouping similar business effects.

And as you know, the U.S. market is very big as well as Japan. And so even if we may not have a comprehensive nature in our contract, because of the big size of the market itself, we are having a great impact. And the U.S. is not only big in size, but also has a huge impact on Europe as well. It's like having Japan following Korea and also U.S. and the U.K. So these may not be comprehensive contracts, but the size of the contract is very big, and we see huge potential.

[Kyung-Jun Lee, executive]

I'm the CFO. Let me respond to your second question. When you look at typical label businesses in the U.S., they focus on catalog business and distribution. But when we considered which labels to acquire, we focused on the aspect of whether these labels are capable of producing superstars. So BMLG, as you know, was successful in discovering Taylor Swift and QC also for Lil Baby and Lil Yachty and [indiscernible] is hitting the big Billboard 100 and another team, BoykinZ, is doing really well. So a key consideration for us in acquiring labels in the U.S. or whether they were able to produce superstars.

And secondly, we're in the process of integrating our label services, including HYBE artists. And we have this very fundamental business capabilities that we have in Korea, and we're applying them to the U.S. market so that we can continue to produce superstars and create fandoms so that we can monetize from these artists. And so that is what we're doing, and that's our strength.

And in terms of investments, we're making investments typical, needed to enhance efficiency and integration of operations.

[Jaesang Lee, executive]

I'm CEO. I'd like to add some comments because this is an important question. As you may know, HYBE is already having a distribution contract with Universal Music Group, and HYBE is the largest label group in the world. And Universal Music Group has a very excellent marketing promotion team or MMP capabilities, not only in the U.S. market, but also in Europe and Latin America. So this is a big advantage for our operations in these markets.

And you asked where, in what areas we are making investments? And our CFO mentioned that we're making investments for enhancement of label services. So while UMG has great MMP capabilities, I believe that our labels have a better understanding and enhanced understanding of our own artists. So we have been investing in producing a larger pool of talented people who are able to do so. So when we combine the marketing promotion capabilities of UMG with HYBE fandom business core competencies, I believe this is where our competitiveness shines.

[Operator]

[Operator Instructions] The following question will be presented by Dayun Kang from Goldman Sachs.

[Dayun Kang, analyst]

I'm Dayun Kang from Goldman Sachs. I'd like to ask a question on your new team launch plans for the second half of the year, not only for Korea, but also in Latin America, you mentioned the Santos Bravos project, and I'd like to know if this is going to be a similar format as Dream Academy of KATSEYE.

[Jaesang Lee, executive]

I'm CEO. Let me answer your question. First of all, a new boy group from Big Hit Music, which is a label for BTS and Tomorrow X Together, will debut very soon, and the date has already been announced, it's August 18. And we are expecting that this group will bring in a huge fresh air to the music industry in terms of their production method, their life stories and their music philosophies. And the way they will be revealed will also be a very novel way.

Big Hit Music has been known as a label with innovative ideas, and it has been representing the voices of the time and dreams and hopes of fans of the era. That has been the key DNA of this label. So in terms of how this group will debut and showcase and as well as the first meeting with fans will be quite different, so we ask for your support.

And your question was also whether our approach in Latin America for new debut groups will be similar to what KATSEYE has been doing. Once again, our basic approach is multi-home, multi-genre, and so depending on the markets, the way these teams debut and the way they will be promoted will be quite different. For instance, after KATSEYE's debut, they took steps that are quite common in the pub market in the U.S., including performing on stages and festivals to reach out to fans, including Lollapalooza stage.

But for Latin America, in the case of Pase a la Fama, this is a band audition program. And throughout the audition show, their recognition and their reputation will continue to grow. So, of course, they will start producing music, but they will be able to quickly meet with fans after this band is decided through promotions and other activities given the characteristics of the local market.

On the other hand, Santos Bravos is a project to develop in debut a boys group. And so Latin music is not just popular in where we are operating, Mexico City, but also in Miami, which is another big hub for Latin music in the U.S. based on Spanish-speaking population. So for Mexico City and West Coast and Miami, we need to cater to these different markets and apply different marketing promotions that are prevalent and popular in the U.S. Therefore, for once again, Pase a la Fama, this is a local brand that will be able to appeal to local audiences, while Santos Bravos is about forming a new boy band for Latin and Spanish-speaking populations. But what they have in common is that multi-home, multi-genre approach will be applied, so in Korea, Japan and the U.S. and Latin America, these can be multi-homes. And we deal with different genres, including K-pop, J-pop and Latin music, but the foundation is similar because we are focusing on the fandom-based mechanism in our business operation. And so they will utilize Weverse DM and Weverse as a platform to reach out fans and connect with fans, and they will continue to communicate with their fans. So basically, we have multiple homes and multiple genres, but the same methodology.

[Operator]

With this time constraint, we would like to conclude the second quarter conference call for HYBE. And if you have additional questions, please contact the IR team. Thank you for your understanding.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]