When I first read that BigHit had had a real gangbusters 2017, my thoughts were, “Good for them! It’s no surprise considering how well BTS has been doing! Awesome!”
But then I started coming across a lot of very enthusiastic (and occasionally financially illiterate) fan translations, and I started to think, Whoa, I’d better do a post about all this.
Here’s the thing: BigHit is planning on becoming a public company, with an initial public offering (IPO) planned for next year. (If you don’t know the difference between a private company and a public company, look here. If you don’t know the difference between revenues and profits, coughcoughPannChoacoughcough, look here.) I was a business reporter during the dot-com boom–believe me, I have seen many IPOs get hyped to fucking moon, and that’s what’s happening here.
Why is it happening? Given the Korean media‘s penchant for printing anything that gets it clicks, it could be pumping up BigHit for that reason alone. But the important thing to remember about IPOs is that they are often an exit strategy for the original investors in the company, and that the original investors plus the banks that handle the IPO want to sell all the shares they have for offer at a good price. That means that right now, we are in the middle of a marketing campaign to sell shares of BigHit to a larger circle of investors.
That’s just how IPOs operate, and there’s nothing inherently wrong with it. What troubles me is the combination of IPO hype and K-Pop fans who are younger and obviously very inexperienced as investors. Remember, good investors have 1. clear financial goals, 2. realistic strategies to meet those goals, and 3. the discipline to stick to those strategies and work the plan.
Not a reason to invest. I’m sad about that, too.
The good news is, there’s actually quite a bit of financial information out there about BigHit, because shares are being traded over the counter. The bad news is…how accurate is this information? In the United States, being an unlisted security means that you don’t have to comply with all those pesky SEC regulations–you know, the ones that protect investors from fraud.
Now, as BigHit nears its IPO date, it is going to have to dot its Is and cross its Ts and get in compliance with stricter accounting standards. But we’re not there yet, which is why breathlessly comparing its results to those of actual public companies is a little naive. BigHit doesn’t have to play by the same rules as a public company, and if reporters are currently getting information about BigHit from anyone with an interest in seeing the IPO go well…you start to see the conflict of interest there. (And don’t get all excited because the people hyping the company are being called economists. The kind of economists who hype companies are the kind of economists who work for the banks that handle IPOs.)
Where does this get especially naive?
Yeah. That 35% (!!!) profit margin sure is impressive, isn’t it?
Of course, BigHit does not yet have to comply with the costs of being a public company (which are considerable), but the main thing there is that seven-year contract timeline: BTS debuted in 2013. BigHit will go public in 2019.
One year after the company goes public, BTS’ contract will be up for renewal.
You want to know a secret about BigHit’s $23 million net profit? It is coming out of the pockets of the members of BTS. They are the ones earning that money, and under their current contracts, they are just letting it go again. They may well decide not to do that any more when their contracts come up for renewal. A six figure salary may seem like a lot–until you realize that your company is running a fucking eight-figure profit off your labor!
The downside of a company hyping a profit margin is that, generally speaking, the talent can read (and hire lawyers) just as well as the investing public. Of course, thanks to this IPO, by 2020 the members’ contract demands will no longer be the problem of BigHit’s original investors–a very fortuitous bit of timing there.
But of course there’s always Option B: Hold a firm line against those BTS punks, so that various members or even the entire group walks!
Ah-ha-ha-ha-ha-ha! Oh my God, can you even imagine! HA! HA! HA!
Yeah, this is the long-term problem with BigHit: They are not diversified. Like, at all.
This graphic made me cackle:
Gee, why did YG have such a slump in its operating income last year? Because BigBang didn’t release a new album in 2017. Investors have long complained about YG’s reliance on BigBang to make money, and the company’s stock reliably takes a beating whenever investors worry about BigBang’s members going into the military or a member has a scandal.
And YG is about a thousand times more diversified than BigHit. Jesus.
Does this mean that BTS and/or BigHit don’t have a bright future? Not at all! But it does means that you might want to hold off on sinking your retirement savings into BigHit’s IPO, even if you really love Suga a whole, whole bunch.