Studio Dragon Rising Sky-high
2Q20 earnings beat market consensus
CJ ENM reported revenue of KRW837.5bn (-33.6% YoY) and OP of KRW73.4bn (-24.2% YoY); revenue was 5.1% below the market consensus, but OP was 31.9% above. By division, Media/Commerce/Film/Music posted KRW24.9bn (-31.9% YoY)/KRW49.8bn (+38.3% YoY)/-KRW3.5bn (turn to red YoY)/KRW2.1bn (-55.7% YoY), marking negative YoY growth across the board excl. Commerce. With people spending more time indoors amid the pandemic, revenue for digital media and commerce have been given a boost while that of TV ads/movies/music have been dampened. Media revenue climbed 33.3% QoQ despite COVID-19’s full-quarter impact; TV ad revenue plunged (-30% YoY), but this was offset by digital revenue, which hit a historic high (+16.6% YoY). Commerce revenue held steady QoQ, thanks to growth for private brands and heavily weighted high-margin categories (e.g., nutritional supplements, living and fashion), and OP grew 31.3% YoY; OPM rose 3%, defying a 1.4% QoQ decline in GMV, indicating CJ ENM’s profitability-focused strategy has paid off.
Studio Dragon rising sky-high
Studio Dragon delivered revenue of KRW161.4bn (+25.9%YoY) and OP of KRW16.9bn (56.3%YoY), beating the market consensus by 3.4%/4.5%. Programming revenue reached a record; non-captive revenue skyrocketed 646% YoY but captive revenue fell 30.5% YoY. Drama sales climbed 9.3% YoY on average to KRW470mn per work amid the growing popularity of K-dramas, particularly The King: Eternal Monarch.
TV ad revenue to recover; smooth sailing for K-content business
We think the TV ad market passed through a trough in 2Q20. With digital ad companies benefiting from the COVID-19’s impact, CJ ENM’s Media earnings turned around QoQ, raising hope that TV ad demand has begun to pick up alongside a recovery in demand for traditional media ads. We highlight Studio Dragon’s rapidly growing proportion of overseas sales. Netflix mentioned at its earnings release that Korean media companies, unlike their peers in other countries, are not experiencing delays in content production in the wake of the pandemic.