Hybe Co Ltd

KRX:352820

Q3-2025 Earnings Call

[Operator]

[Interpreted] 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 third quarter fiscal year 2025 earnings results.

[Unknown Executive]

[Interpreted] Greetings. Thank you for joining HYBE's 2025 Q3 Earnings Call. This is [ Kim Jinho ] Head of Financial Strategy. I'll be moderating today's conference, which will proceed through consecutive interpretation. Today, CEO, Lee Jaesang will present Q3 business highlights and future plans; and CFO, Lee Kyung-Jun will present the earnings highlights, followed by the Q&A session. Please note that today's earnings call is based on preliminary consolidated estimates under K-IFRS and subject to change during an external audit.

[Jaesang Lee, executive]

[Interpreted] Good afternoon. Thank you for joining today's earnings call. We fully understand the concerns and disappointment our shareholders have about this quarter's performance. It is mainly due to the impact of short-term cost increase associated with the investment for sustainable growth of the company and restructuring of overseas business. CFO, Lee Kyung-Jun will discuss details on specific factors that impacted our earnings.

I would like to note that HYBE has maintained fundamental business competitiveness and basis for growth amid these changes and carried out structural improvements for sustainable growth in a consistent manner. We would like to use this as an opportunity to further enhance our business structure and execution systems and make a new leap forward. Now I'd like to discuss business highlights and major achievements.

Let me report on our album results. First, S.Coups and Mingyu, a new unit of SEVENTEEN launched their first mini-album Hype Vibes, which sold about 890,000 copies during the first week, making it the best-selling K-pop unit album. The success of this album demonstrates that diverse unit activities can fill some vote that SEVENTEEN's fans may feel due to some of the upcoming military services by members. LE SSERAFIM achieved their best results with the first single Spaghetti landing on the Billboard Hot 100 at the 50th place. They also achieved their career high on the U.K. Official Charts and Spotify Global.

This year has been the best year for BOYNEXTDOOR since their debut. They came back with the fifth mini-album, The Action, where all members participated in the production. The album sold 1.04 million copies in the first week based on Hanteo Chart, making it the third consecutive million seller. The title track Hollywood Action entered the Melon weekly chart at the 21st place, which is their best record.

TWS and ILLIT entertained their fans with new music in their second year since debut. First, TWS sold 640,000 copies of the group's fourth mini-album, play hard, in the first week, achieving their best first week sales. With all their album selling more than 0.5 million copies in the first week since debut, the group is continuing their growth momentum. ILLIT made a debut in Japan with the first Japanese single, Toki Yo Tomare, which ranked high on Oricon, iTunes Japan and Apple Music Japan top album charts.

The debut of CORTIS with Color Outside The Lines made quite a stir. It is a young creator crew that was formed for the global market in mind from the very beginning. The first week sale of their debut album was about 440,000 copies, the highest among the rookie artists of this year and the fourth highest of all K-pop group debut albums. The album became 0.5 million seller in just 2 weeks and debuted on the U.S. Billboard 200 at the 15th place. It was charted on major charts such as World Albums, Top Album Sales and Top Current Album Sales for 5 consecutive weeks. In just 1 month, the album scored cumulative 100 million streams on Spotify with more than 7 million monthly listeners; demonstrating a rapid growth of their global fandom.

CORTIS received much attention in North America as well. Appearances on major programs such as iHeartRadio and the Zane Lowe Show as well as indications to large global events in the U.S. have helped expand their reputation in the local market. The share of streaming in the recorded music revenue in the third quarter is around 38%, which shows that music by HYBE artists continue to be streamed globally.

Moving on to concerts. HYBE artists continue to expand their contract -- contacts with global fans through global tours and fan meetings in the third quarter as well. First, Jin of BTS held 20 fan concerts in 10 cities from June to November, attracting more than 330,000 fans. During his tour in Europe, he recorded the largest concert profit as a Korean solo artist entering the Billboard Top Tours Chart and demonstrating his global ticket power.

SEVENTEEN kicked off a global tour New_ with the first show in Seoul in September. The group continues to meet with global fans by expanding their tour to Asia, North America and Japan. TOMORROW X TOGETHER made a surprise announcement at their first concert that all members renewed their contracts. And the group is broadening their global fandom during the ACT: TOMORROW tour by performing in various cities in the U.S., Japan and Asia, including Seoul.

ENHYPEN started the Walk the Line Tour in October last year and successfully concluded 32 shows in 18 cities, selling about 676,000 tickets. With sold-out shows in 14 cities, ENHYPEN held a concert at a Japanese stadium in the shortest period of time after debut among foreign artists, further strengthening their influence in the global market. LE SSERAFIM sold out shows in seven cities of their first North American tour, including Newark, Chicago and Seattle, demonstrating a strong ticket power. Next week, they will stage a show in Tokyo Dome in Japan, the first since their debut.

HYBE's multi-home, multi-genre strategy has resulted in the expansion of artists' IP production and consumption beyond orders. A primary example is &TEAM, an artist group based in Japan. Their Korean debut album, Back to Life, sold 1.14 million copies on the first day of release, topping the charts in both Korea and Japan. They became the first Japanese artist to achieve a million seller in both countries and hit a career high with the album sales more than double their previous album Go in Blind. It is the first time in history that a Korean album by a Japanese artist topped the Oricon Chart, which shows that a new fandom is being created that is different from the existing K-pop fandom because it appeals to Koreans who enjoy listening to Japanese music. This is a concrete example that shows that HYBE's global production capabilities and the multi-home, multi-genre strategy are producing meaningful results by connecting the two markets organically.

In the same vein, another example of how the multi-home, multi-genre strategy is working in the global market is KATSEYE. In their second year since debut, the group is solidifying its position in the mainstream market. As you may have seen in the media this week, KATSEYE was nominated for two main categories of the 68th Grammy Awards, Best New Artist and Best Pop Duo/Group Performance, thus writing a new history. The Grammy nominations mean just more than just getting nominated. In particular, nominees for the Best New Artist category are decided not just based on debut year performance, but based on whether they have gained sufficient popular appeal and have influence on the overall music market during the nominee review period.

It is extraordinary that KATSEYE was nominated considering the fact that this group debuted just a little more than a year ago. This result suggests that the group has built a strong global fandom and achieved commercial success in a short span of time. And it's a symbolic example that shows that HYBE's global production system is competitive in the Western market as well. In other words, K-pop's production model and creative processes has been successfully applied in the U.S. music market, resulting in gaining the recognition at the prestigious Grammy awards. We believe that this is an important example that showcases the success of HYBE's globalization strategy.

Since debut, KATSEYE carried out diverse activities in the U.S. market according to the local playbook. We've strived to strike a right balance between pop and K-pop in terms of not only their albums and music, but also content, promotions and media appearances. Building on the know-how of K-pop, we have attempted to differentiate their music style, visuals and fan engagements based on the needs of the local market and unique identity of the artist group. As a result, Gabriela reached their highest ranking by going up to the 37th place on Billboard Hot 100. And Gnarly reentered the chart being charted for a total of 11 weeks. Both songs achieved these results of upward ranking trend more than 4 months after release, demonstrating their public appeal in the mainstream market.

Building on this momentum, KATSEYE will start their first global tour from next week for 16 shows in 13 cities in North America. Their popularity has been demonstrated by the fact that all concerts have been already sold out. In addition, final members of a four-member sister group under the same label with KATSEYE are currently being selected through a global audition, and their journey will be revealed on a Japanese OTT platform next spring.

Artists of HYBE America also produced outstanding results and continue to expand their influence in the local market. BigXthaPlug of QC Music released I Hope You're Happy in late August, which ranked second on both the Billboard Top Rap Albums and Top Country Albums, demonstrating their appeal across genres. The title track, All the Way ranked fourth on Billboard Hot 100 and topped the Hot Rap Songs chart. During the first month, the song reached more than 300 million streams on Spotify. Riley Green of BMLG sold out the tour in the U.K. and Ireland. Change My Mind, released in October last year, continues to be popular, and achieved the first solo top on the U.K. Country Airplay Chart. In addition, EJ Jones, who joined QC Music last October, is gaining momentum with a single track, Gas Station Love, increasing monthly listeners on Spotify rapidly.

Let me now report on our business in Latin America. In the first half of this year, Pase a La Fama, an audition program aired in the Latin region, was successfully concluded. We signed exclusive deals with three finalist teams, including the winner Musza. The program ended their 3-month journey with the final round of competition on August 18. Afterwards, each team is working under album production through S1ENTO Records, a label under HYBE Latin America. Musza, the winner, is working on their music based on hybrid sound that combines traditional Mexican music, R&B and pop elements. In addition, Destino [indiscernible] as well as Low Clika, a group that enjoyed most popularity during the show, are planning to carry out their activities in the Latin music market with their unique music styles and performances.

HYBE Latin America debuted Santos Bravos, a five-member boy group through its own audition project. The members received a structured training for 6 months based on the K-pop production system and made an official debut with the first single 0% on October 22. It is a hybrid genre that blends original Latin music style with K-pop planning. The group has attracted a meaningful size of the initial fandom even before official debut with more than 100 million cumulative views of social media content and 100,000 Weverse subscribers. All 10,000 tickets for their debut concert were sold out in just 2 hours, demonstrating high expectations in the local market.

Going forward, the group plans to expand brand awareness and fandom base through a variety of activities, including performances at global music festivals and cooperation with leading Latin media platforms such as Telemundo. With the successful debut of Santos Bravos, HYBE has confirmed that our planning and production capability centered on K-pop can be effectively applied to the Latin region. Driven by this experience, we aim to generate new growth drivers in the local music ecosystem.

Other artists under HYBE Latin America continue their strong career. In particular, Daddy Yankee dubbed the King of Reggaeton, signed a management deal with HYBE Latin America this year and made a successful return in the global music market with his new regular album, Lamento En Baile. The music video of the title song, El Toque, was filmed in Mungyeong Saejae Mountain Pass in Korea, attracting much attention from global fans and local Latin media. Dandy Yankee expressed deep satisfaction with HYBE support and partnership throughout this collaboration. This project is an example of expanding collaboration capabilities in the Latin music market based on our global network. We will continue to strengthen music-related synergies with various local artists.

Finally, I'd like to report on Weverse, the global superfan platform, which sustained a growth trend in the third quarter, producing meaningful results. In particular, we're seeing a sustained growth of the size of digital business that generates recording sales, including digital membership, Weverse DM and advertising. While total Weverse revenue tends to fluctuate in line with artist activities, the increasing share of digital business revenue is contributing to the stability of the overall profit structure. Based on this, Weverse turned the profit on a cumulative basis in the third quarter of 2025. Going forward, we expect significant improvement in Weverse earnings for 2026; not only thanks to higher e-commerce sales on the back of resumption of BTS activities and growth of major HYBE artists, but also the growth of Weverse's own digital business.

Furthermore, Japanese artists are increasing their use of Weverse. For instance, since joining Weverse in July, KAWAII LAB is actively utilizing DM service to communicate with their fans. YOASOBI continued their activities on Weverse for the past year. And the vocalist member of the group, Ikuta Lilas, opened her solo channel and introduced digital membership.

Likewise, Japanese artists' usage of the platform has been growing. In addition, the platform is expanding in the Chinese market as well. On November 6, Weverse announced a strategic partnership with QQ Music, China's largest music streaming platform, to allow users to subscribe to Weverse DM service directly from QQ Music platform. Weverse Shop opened a brand shop on Tmall in China, being included in the list of 2025 Supernova Brands which are foreign brands that received most attention from Tmall this year. The platform aims to enhance accessibility for Chinese fans through synergies with China's largest online music and entertainment platform and the e-commerce platform.

In our game business, DRIMAGE published a new MMORPG game Architect. Available on mobile and PC platforms, the game ranked first in terms of Google Play sales in just 8 days from release, and it is still ranked high, a meaningful result for a new game publisher to achieve. Going forward, rather than aggressive business expansion, we will focus on profitability through efficient operations and strategic portfolio composition. Building on the positive momentum of Architect, we will strengthen project results, including Arkheron by the Bonfire Studios scheduled to be released in next year and enhance efficiency in our business structure.

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

[Kyung-Jun Lee, executive]

[Interpreted] Good afternoon. This is CFO Lee, Kyung-Jun. Let me report on HYBE's consolidated financial results for the third quarter. The consolidated revenue posted KRW 727.2 billion, a significant growth year-over-year. Revenue with direct artist involvement, including recorded music sales, concerts, advertisements and appearances, was KRW 477.4 billion, accounting for 66% of the total revenue; while revenue with indirect artist involvement, including merchandise, licensing content and fans club sales recorded KRW 249.8 billion, taking up the remaining 34%.

Let me give you more details by revenue category. In Q3, recorded music sales were down year-over-year to KRW 189.8 billion as we had fewer comebacks this quarter. On the other hand, concert sales more than tripled year-over-year to KRW 245 billion, thanks to the global popularity of large-scale concerts, including Jin's global solo tour and the world tours by T X T and ENHYPEN.

Revenue with indirect artist involvement posted KRW 249.8 billion, up 22% Y-o-Y. Merchandise and licensing revenue recorded KRW 168.3 billion, up 70% year-over-year, while content sales were KRW 46.8 billion, down 40% year-over-year. Merch sales were driven by tour merch and light sticks associated with tours and IP-based character products.

In the third quarter, we posted KRW 42.2 billion in operating loss with a negative OP margin of 5.8%. The decline in Q3 profitability was driven by a combination of two major factors. First, we made preemptive investments for global IP expansion. In Korea, we successfully launched a boy group, CORTIS, to build next-generation global IP. In Latin America, we quickly expanded localized artist IP through Pase a la Fama and Santos Bravos. Initial investments such as marketing and content production costs for these projects were recognized in the third quarter, thereby bringing down our operating profit margin by around 6 percentage points. It had a negative impact on profitability in the short term, but it will contribute to HYBE's future growth in the medium and long run through global fandom growth and profit-based stabilization.

The second factor is one-off expenses related to North American business restructuring. HYBE is in the process of shifting its structure from the management-centered business to an integrated IP business structure led by labels. In this process, expenses that incurred to shift our business focus and improved organizational efficiency further pushed operating profit margin down by around 6 percentage points. These were necessary measures to ensure future profitability of North American business and operational stability. Starting from next year, we expect P&L of North American business to become stable on the back of the effect of business restructuring and the resumption of BTS activities.

Since most of these one-off issues were recognized in the third quarter, we expect our earnings to gradually regain stability in Q4. However, we anticipate initial marketing expenses for large-scale MMORPG game, Architect, launched in Q4 and as well as some remaining investment costs related to the U.S. business restructuring and Santos Bravos of HYBE Latin America that were recognized in Q3. Therefore, short-term profitability recovery is likely to be limited. Nevertheless, our K-pop business is maintaining profitability of around 10% to 15% this year, and most of these cost factors will be fully resolved by the end of Q4. So we expect that improvements in the profit structure will begin in earnest starting next year.

Moving on to KPIs of Weverse. The platform maintained a solid growth trend with the average MAU of approximately 11.6 million in Q3, another record high quarterly MAU; mainly thanks to the return of BTS members using Weverse services after military service and diverse global activities by artists on the platform. On the other hand, Q3 total transaction volume fell 28% Q-o-Q, and the monthly ARPPU also fell by 26% Q-o-Q. It is mainly because major activities by artists were reduced compared to the prior quarter, which shows that Weverse transactions naturally tend to fluctuate according to activity schedules of the artists. But as was mentioned before, such variability is expected to reduce gradually on the back of digital revenue growth.

In closing, HYBE is constantly striving to live up to the trust of our shareholders and making changes to build a more robust business structure while venturing into new markets and new genres. Going forward, we expect the whole group activities of BTS, the come backs of major artists, the full-fledged monetization of new IPs in the early stages of growth and the stable label profitability of our restructured North American operations to gradually have a positive impact on the overall performance. To reduce volatility and evolve into a global music company with a predictable earnings structure, we will continue to implement more sophisticated business operations and balanced resource allocation. We will keep doing our utmost to meet the expectations of our shareholders. Thank you.

[Unknown Executive]

[Interpreted] We would now like to start the Q&A session.

[Operator]

[Interpreted] [Operator Instructions] The first question will be provided by Junhyun Kim from HSBC.

[Junhyun Kim, analyst]

[Interpreted] I'm Kim Junhyun from HSBC. I have a question about your expense plans. I understand that you have been making preemptive investments for IP expansion, but there seems to be a potential mismatch between revenue generation and schedule of such investments and expense execution. And there seems to be some concern in the market that, of course, you will continue to debut new groups in order to expand your IP portfolio, and you have a presence in China as well as in India. So we can anticipate additional investments going forward. So next year, when BTS resumes their whole group activities, this will lead to increase in your revenue. But the impact of -- or the positive impact of BTS coming back may not may be offset by additional investments that you are making on that side. So I'd like to understand your investment plan and overall expense guide going forward.

[Jaesang Lee, executive]

[Interpreted] Thank you for the question. As you mentioned, there are a number of key decisions that the management has to make with respect to when and how much investments will be made and how they will impact our earnings because investments are recognized as cost and expenses. While we disclose our Q3 earnings results, we also disclosed our letter to shareholders. And if you read this letter, you will be able to better understand our approaches to future investments.

As you can see, artist performances are growing, and they are generating good sales and revenue. But at the same time, we are trying to lead changes in the market by applying our fandom business model overseas as well as applying our K-pop methodology. So I believe that there is some time and opportunity that we need to consider as well.

After we went overseas with BTS, we were able to expand our presence. And in the meantime, we've seen the emergence of players who are benchmarking our K-pop methodology and our fandom business. So when these local players emerge that are using our approaches, of course, we have better know-how and experience, we are more competitive. We also need to keep them in check. And so while we continue to defend our earnings, it is very important to continue to make investments. If we slow investments just because we feel that it is important to keep our earnings in check, then we may lose leadership in the market because there are many newcomers coming into the market. And so we are constantly monitoring right timing for investments and looking at the changes in the market and make timely investments because we believe that these timely investments will lead to medium- and long-term business growth.

So that is basically our main principle. That is why we made preemptive investments in the Latin music industry as well as our investment for KATSEYE in the U.S. that started 3 years ago. And these investments are now producing meaningful results, and the same goes for India. So while we continue to try to boost our performance and earnings, we don't want to miss out on opportunities that are opening up in the market, and our CFO will add more details.

[Kyung-Jun Lee, executive]

[Interpreted] As CEO mentioned, we're not disclosing any guidance. But as a CFO, I can give you some visibility regarding -- for each region. We will continue to expand our global IP portfolio. And as you may know, when we enter a new region and new industry, it incurs initial investments, which are quite a lot in terms of expense amount. But once the IP expansion is more stabilized, then cost efficiency will continue to go up.

In the U.S., we have a new IP plan next year, but we have already learned a lot of lessons through the KATSEYE experience. So we are working on a plan that will be more cost effective and will be able to create better results. In the Latin market, we could have slowed down our IP growth strategy, but we saw a huge potential. And that is why we carried out two projects this year alone. And so we don't have any additional new IP debut plan next year, but we will focus on stabilizing the operations of the IPs that we debuted this year. So this will not incur any major expense increase.

Moving on to India and China. We are also, of course, exploring these markets, but there's no plan for IP debut next year as of now. So it's not going to incur any major investment going forward.

[Operator]

[Interpreted] The following question will be presented by Hazel Lee from NH Investment & Securities.

[Hazel Lee, analyst]

[Interpreted] I'm Lee Hazel from NH Investment and Securities. I would like to ask two questions. First of all, you mentioned that you went through a North American business restructuring and headcount restructuring and organizational efficiency enhancement and some of the changes to the contract structures. And I'd like to understand how much of these changes will have on your earnings in the medium to long run. And so I'd like to get some guidance on that.

And the second question has to do with the cost of debuting an artist team. This year three teams, and it cost about KRW 40 billion. And so I'd like to understand if this is an ongoing trend, meaning that it takes more than KRW 10 billion to debut a team? Or is this something that we would consider just for this year?

[Jaesang Lee, executive]

[Interpreted] So your first question was on the implications of North American business restructuring on our future earnings. And unfortunately, I cannot give you any specific guidance, but I'd like to mention that we had to take on and implement these restructuring measures in order to ensure a stable profit structure of the U.S. business starting from next year.

I would like to address your second question. Technically speaking, we have debuted five teams of artists this year because there are three bands -- band groups from Pase a la Fama as well as Santos Bravos and CORTIS. Now we don't have any specific number to share with you regarding how much money it takes to debut a group, but it very much depends on our target market. Because depending on countries and markets, there are different marketing strategies and operational costs that may quite vary.

But the point that I want to make is that when we first enter a new market, even though we go into that market with some network, there are always expenses that incur in the process of learning and trial and error. And as CFO mentioned, as we are prepared for the second group following KATSEYE, there will be less expenses incurred. And also a new boy group that we're preparing together with Ryan Tedder, it's going to be relatively cheaper than the initial costs that were needed to debut new groups. So overall, cost efficiency will continue to improve.

And secondly, depending on markets, there are different price points and price tags. And third, as you may know, different boy groups, different artists and different target groups will require different promotional strategies and different marketing strategies. And we're focusing on preparing for artist groups based on segment analysis. And we also need to take into account media environment and how fans consumption and behavior patterns change. And depending on all these factors, we plan our budget. So there is no uniform formula for this type of approach. But overall, what I can say is that if we continue to expand our IPs in the same region, cost efficiency will continue to improve. But depending on new trends, numbers may change as well.

[Operator]

[Interpreted] The following question will be presented by Eun-Hyung Lee from Hana Securities.

[Eun Hyung Lee, analyst]

[Interpreted] I am Lee Eun-Hyung from Hana Securities. I would like to ask two questions. First of all, you mentioned that Weverse has a partnership with QQ Music as well as Tmall. And so if you can provide us with some background as to your Chinese business, we will be able to better understand your developments regarding Weverse. And the second question is regarding your gaming business, and you mentioned that you will continue to improve and restructure your portfolio. And so I'd like to understand if there were any one-off costs that incurred in the third quarter related to your game business.

[Jaesang Lee, executive]

[Interpreted] I'm CEO. It's really nice to talk with you. And you may be quite pleased about our partnerships with QQ Music and Tmall. There are some positive signs coming up from -- coming from the Chinese market, but we understand that there's still a lot of uncertainty surrounding the Chinese market. So rather than putting in our resources directly, we have been utilizing corporate partnerships. And so we have not been trying to maximize profits coming from China, but we understand that there are so many Chinese fans who love and support our artists.

So we've been -- and they've been consuming our artists' content and other content in a variety of ways and there were some voices that we collected. And so we decided to partner with QQ Music, the strongest streaming platform in China, as well as Tmall so that more Chinese fans can engage with our artists more actively. So it was more of a company-to-company partnership. And such partnerships are already receiving very positive responses.

So in addition to the currently available Weverse DM, we're discussing additional services to be available on these platforms. And as you know, these will have direct contribution to our earnings because these are subscription-based. So in China, we're not aggressive yet, but we are continuing to look for and implement solutions that can best serve our fans in China.

And regarding your second question on our gaming portfolio. Since the first quarter of this year, we've been in the process of developing plans for our game business because we need to stay focused. And at the same time, in the next 3 to 5 years, we need to anticipate how the market will change going forward in terms of genres and in terms of user play patterns. So we cannot really disclose in any detail, but we've decided to drop several in the pipelines. These are quite sensitive, so I won't go into too much detail. But what I can say is that we are constantly reviewing our game business strategy.

So we have the Architect and we also are going to publish Arkheron. But in addition, we are considering our in-house titles, whether what we are going to do about them because we are constantly changing our strategy to be able to stay focused.

And in the medium to long run, as you may understand, the genres and preferences and lifestyles in the game industry are quickly changing. In the past, the game industry was mainly led by development game studios, but this space, it is more of an open environment where user feedback is actively incorporated through the alpha and beta versions. So we are trying to improve our business structure so that we can have a better portfolio in the medium to long term. And so we are developing and improving our game business strategy right now.

[Unknown Executive]

[Interpreted] Thank you very much. This is the end of HYBE's third quarter earnings call. Thank you.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]