This is the eighth in a series of articles analyzing major companies by market capitalization traded on the tech-heavy KOSDAQ market. -- Ed.
Loen Entertainment, operator of Korea’s top online music streaming service MelOn, is likely to achieve solid growth this year on the benefits from its tie-up with Kakao Corp., analysts said Monday.
As of the end of March -- just two months since Kakao acquired a major stake in Loen -- MelOn had up to 3.65 million paid subscribers after adding 100,000 new subscribers in the first quarter.
The number is expected to further rise to 4 million at the end of this year, mainly on Loen’s aggressive promotion activities to be conducted jointly with parent company Kakao, analysts said.
“Full-fledged synergies with Kakao should materialize in the second half of the year, as marketing efforts start to pay off in the form of more paid subscribers to MelOn,” said Justin Kim, an analyst at NH Investment & Securities.
He noted that while marketing expenses will likely rise in the second quarter following the launch of MelOn Ticket, a new ticketing service, they won’t affect overall business growth.
That‘s mainly thanks to Loen’s strong fundamentals as shown in terms of earnings in the first quarter, according to Ji In-hae, an analyst at LIG Investment & Securities.
Loen said in a public filing on Friday that its operating profit surged 40.8 percent year-on-year to 18.4 billion won ($16 million) in the first quarter, while its net profit jumped 37.6 percent to 15.1 billion won. Sales rose 23 percent year-on-year to reach 96.5 billion won in the same period.
“Despite the company’s increase of music service fees this year and sluggish earnings in management business, Loen’s first quarter earnings met consensus,” Ji said.
Loen’s share prices did fall about 16 percent from their March highs following its decision to raise subscription fees, but industry watchers expect them to rebound towards the end of this year.
On March 10, MelOn raised fees for downloading online music to 700 won from 600 won per song, initially for just new subscribers. The monthly fee for unlimited access to music streaming service was raised to 7,900 won from 6,000 won. The new fees will be applied to all subscribers in September, after which analysts believe Loen’s share prices will recover.
Analysts including Kim of NH put buy positions on Loen shares, expecting them to rise to as high as 110,000 won, based on solid earnings results, the growth potential in MelOn and newly acquired entertainment business Plan A.
Loen’s shares rose 0.49 percent to close at 82,300 won on Monday.
According to online data provider Korean Click, MelOn’s stake in the domestic digital music market stood at 60 percent as of the end of 2015, followed by rivals such as Genie, Mnet, Bugs and Soribada.
By Kim Yoon-mi (yoonmi@heraldcorp.com)
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