Korean Content Demand And Digital Platforms Will Expand Global Reach

Key Takeaways

• International demand for Korean content and strong digital partnerships are diversifying revenue streams and supporting topline and margin growth.
  
• Proprietary content expansion and digital commerce investments are driving recurring, higher-margin revenue and boosting earnings stability and predictability.
  
• Weak TV ad market, rising content costs, legal risks, and intense streaming competition threaten profitability and expose CJ ENM to volatility in global K-content demand.

Catalysts

Engages in media platform, film/drama, music, and commerce businesses in South Korea.

• Continued global demand for Korean content is leading to successful international releases (e.g., LAPONE's record revenues, KCON Japan's strong attendance, international partnerships with Netflix, Amazon, and Apple TV+), suggesting that CJ ENM can grow export revenue and diversify its monetization streams, positively impacting future topline growth and earnings.
  
• The shift from linear TV to digital and streaming is accelerating subscriber recovery for TVING through bundling, new alliances, and account-sharing restrictions, positioning CJ ENM to capture a larger share of direct-to-consumer and advertising revenues, supporting improved net margins over time.
  
• Expansion and global adaptation of proprietary IPs-such as "Marry My Husband" achieving #1 on Amazon Japan and multiple global nominations for Fifth Season productions-are driving recurring revenue streams and higher-margin business through syndication, format sales, and international licensing, which should boost earnings predictability.
  
• Initiatives for business model diversification, such as mobile live commerce growth and premium/influencer commerce, tap into higher-yield digital transactions and cross-platform synergies, setting the stage for margin improvement as these investments scale.
  
• Potential re-opening of the Chinese market to Korean content, coupled with ongoing discussions for co-productions and sales of back-catalog titles, presents a significant upside leverage to revenue and EBITDA should regulatory barriers ease, given the size and appetite of the Chinese audience.

CJ ENM Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CJ ENM's revenue will grow by 5.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from -10.6% today to 3.7% in 3 years time.
• Analysts expect earnings to reach ₩223.4 billion (and earnings per share of ₩5880.52) by about August 2028, up from ₩-550.4 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₩322.2 billion in earnings, and the most bearish expecting ₩77.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.6x on those 2028 earnings, up from -3.0x today. This future PE is lower than the current PE for the KR Entertainment industry at 19.1x.
• Analysts expect the number of shares outstanding to grow by 0.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.76%, as per the Simply Wall St company report.

CJ ENM Future Earnings Per Share Growth

Risks

• Persistent decline in TV advertising revenue due to continued weakness in the broadcasting ad market and challenging macroeconomic conditions may pressure overall revenue, especially as the transition from traditional to digital platforms remains incomplete and not fully offset by digital ad gains.
  
• High content production costs and increased strategic investments in new IP and marketing (particularly within the commerce and mobile live commerce divisions) are compressing operating profits and net margins, with breakeven or low profitability in new growth initiatives impacting near-term and possibly longer-term earnings.
  
• Execution risks and legal uncertainties, such as the significant liquidated delay damages related to the K-Culture Valley project (₩34.4 billion claim), may result in unplanned financial liabilities, potential write-downs, or increased cost reserves, negatively affecting future earnings.
  
• Overreliance on the ongoing global popularity of K-content for international growth exposes CJ ENM to volatility if the global appetite for Korean media wanes, and the uncertainty regarding the easing of China's ban on Korean content adds unpredictability to potential revenue from the Chinese market.
  
• Intensifying competition from global streaming giants (Netflix, Disney+, Amazon) and accelerating industry fragmentation could inflate content acquisition costs and dilute audience share, making it more difficult for CJ ENM to secure profitable distribution deals, thereby threatening long-term revenue growth and margin expansion.

Valuation

• The analysts have a consensus price target of ₩82533.333 for CJ ENM based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₩100000.0, and the most bearish reporting a price target of just ₩43000.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₩6075.1 billion, earnings will come to ₩223.4 billion, and it would be trading on a PE ratio of 10.6x, assuming you use a discount rate of 12.8%.
  
• Given the current share price of ₩79000.0, the analyst price target of ₩82533.33 is 4.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.