[ANALYSIS] 110516 SM Releases Quarterly Report; Profits Decline By Approx. 90%

May 16, 2011 · by JYJ3 Team

Today SM Entertainment released its report for the First Quarter of Year 2011. The results are shown to you below, with material terms translated. Pay attention to the bold and especially the red.

SM’s reports show that in the First Quarter of 2011, its net profit was about 910,000,000 KRW, or approximately 900,000 USD. Its net profit from the First Quarter of 2010, a year prior, was about 8,300,000,000, or approximately 8,300,000 USD. In other words, in the beginning of last year SM’s net profit was about 8 million USD, and in the beginning of this year it is about 1 million USD. It decreased 8-fold, or declined by about 90%.

The same report also shows that for the First Quarter of Year 2011, the money that SM raised in Sales from its Music Business (to be distinguished from “net profit” which takes out the expenditure that went into those sales) was about 11,500,000,000 KRW, or approximately 11,500,000 USD. A year before, it was about 17,600,000,000 KRW, or approximately 17,600,000 USD. In other words, there is a difference of about 35% between the two years. The sales raised from Japan for the First Quarter of Year 2011 was about 3,900,000,000 KRW, or approximately 3,900,000 USD. A year prior, it was about 13,000,000,000 KRW, or approximately 13,000,000 USD. This decline is about 70%.

To put this in context, JYJ3 calculated the net profits from Quarterly Reports of SM from past quarters and made a simple graph. (Please note that the accounting terms changed slightly in the 2011 report from prior reports and that SM is often not precise in its reporting from year to year. Nonetheless, these variations do not result in a material change. We used the most modern figures available to make this graph.)

What does this mean? You will notice that the net profit raised in past three quarters (First Quarter of 2011, Fourth Quarter of 2010, and Third Quarter of 2010) are actually are nowhere near the 9 billion KRW (approximately 9 million USD) from the First Quarter of 2010. They are clustered pretty close to where SM is now– about 1 billion KRW (approximately 1 million KRW). JYJ readers probably remember that about a year ago SM boasted that despite the lawsuit it became more profitable than ever– and it was telling the truth. In the First Quarter of 2010 and the Second Quarter of 2010, it did have unprecedented profits of about 8 billion KRW and 9 billion KRW each (approximately 8 and 9 million USD). But this was from the “Tohoshinki Explosion/Boom” that took place around 2008-2009. The enormous profits made then had been balanced and applied to the quarterly reports of early 2010. Notice that prior to that, SM’s profits hover around where it is now currently in the First Quarter of 2011.

The above graph states our conclusion pretty clearly. Without JYJ, SM’s true worth and profitability is probably exactly around where it is now– and this fall is just a part of the natural return of SM to where it is supposed to be. And it is a sweet fall.

Nonetheless, these “outliars” of extraordinarily high profits may happen again for SM very soon because it is likely to soon receive the profits from the sale of JYJ products by Avex – the “Memories” DVD being one such product. Therefore, in the near future, SM’s profits may become higher due to JYJ. Be prepared for it, but also be mindful that SM’s fall/return to its truthful state is unavoidable.

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[ANALYSIS] 110516 SM Releases Quarterly Report; Profits Decline By Approx. 90%

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