The Impact of Netflix's 'Squid Game' Season Letdown on Korean Stocks

Introduction

Recently, the stock market in South Korea faced a significant downturn, particularly affecting companies connected to the popular Netflix series "Squid Game." The news surrounding the lackluster performance of the anticipated new season has sent shockwaves through the financial markets, prompting us to analyze the short-term and long-term impacts on these stocks and the broader market.

Short-term Impacts

Affected Stocks and Indices

1. Krafton Inc. (Krafton) - KRX: 259960

• As the developer behind the game adaptation of "Squid Game," Krafton has seen its stock price decline sharply following the news. Investors may have expected a surge in interest post-release, but the disappointment has led to a sell-off.

2. CJ ENM Co., Ltd. (CJ ENM) - KRX: 035760

• This entertainment company is heavily invested in producing content for streaming platforms like Netflix. The news of a disappointing season will likely impact their revenue projections.

3. Samsung C&T Corporation (Samsung C&T) - KRX: 028260

• With its involvement in content production and distribution, Samsung C&T might also feel the effects, as the excitement surrounding "Squid Game" may have initially bolstered investor confidence.

4. KOSDAQ Composite Index - KRX: KOSDAQ

• The KOSDAQ Index, which includes many tech and media companies, may experience volatility as investors react to the news.

Market Reactions

In the short term, we can anticipate:

• Sell-off Pressure: Investors may react quickly by selling shares of companies associated with "Squid Game," leading to a rapid decline in stock prices.
• Increased Volatility: The overall market may become more volatile, as traders speculate on the future performance of these stocks.

Long-term Impacts

Broader Market Considerations

1. Investor Sentiment:

• The disappointment in a major series can dampen investor enthusiasm for the South Korean entertainment sector. If this sentiment persists, it could lead to reduced investments in similar content-driven companies.

2. Future Content Strategies:

• Companies involved may reconsider their content strategies. A focus shift towards diversified and innovative projects may arise to mitigate the risks associated with heavy reliance on a single franchise or series.

Historical Context

This situation is not unprecedented. In the past, similar events have led to notable market reactions:

• April 2019: Following the final season release of "Game of Thrones," shares in HBO's parent company, AT&T, saw a sharp decline when the season did not meet viewers' expectations. The stock fell by approximately 2% in the days following the release.
• July 2020: Netflix reported a slowdown in subscriber growth after the initial success of "Money Heist," leading to a 10% drop in its stock within a week.

Conclusion

The disappointment surrounding the new season of "Squid Game" is likely to have both immediate and lasting impacts on the South Korean stock market. The affected stocks, particularly those of Krafton and CJ ENM, may face continued scrutiny from investors, leading to bearish trends in the short term. As historical precedents suggest, the broader market may also reflect a cautious sentiment towards entertainment stocks in the long run.

Investors should remain vigilant and consider these dynamics when evaluating their portfolios in the context of South Korean entertainment stocks.