Mattel (NASDAQ: MAT), the world’s second largest toy company (after Lego) has struggled over the last decade but may be headed for better times.
It has a lot of ground to make up. The stock price has dropped 9% over the past year, 31% over the past five years and 53% over the last 10 years.
The 2023 movie Barbie was a smash hit, giving Mattel a $125 million revenue boost, thanks to earnings from the film itself, doll sales and related merchandise. But the strength didn’t last, proving once more that the fashion sense of young girls is very fickle. Barbie doll sales have slumped since late 2023.
Another of Mattel’s core brands has slumped too — Fisher-Price educational toys. And Mattel has lagged its smaller competitor Hasbro (NASDAQ: HAS) in creating digital games. The company went through four CEOs in four years (2014-18). To be sure, Mattel has kept the same CEO since then, Ynon Kreiz.
And Morningstar analyst Jaime Katz sees him as a positive. He has “brought solid experience in digital and intellectual property, which Mattel had failed to capitalize upon in prior years,” she wrote in a commentary.
On the digital side, Mattel is making progress. In March it purchased NetEase’s 50% stake in their Mattel163 digital-game venture for $159 million, taking full ownership. Mattel163 develops digital games based on the toy company’s brands. Since 2018 it has launched four digital games: Uno, Uno Wonder, Phase 10 and Skip-Bo.
‘Early stages’ for digital games
“In our view, Mattel is in the early stages of an investment similar to Hasbro’s investment in gaming over seven years ago,” D.A. Davidson analyst Keegan Cox wrote in a commentary cited by CNBC.
“While we don’t think Mattel will be chasing to compete with Hasbro, … we do believe it can make successful mobile games tied to their intellectual property and should add to profit margins over time.”
One Mattel brand that’s going great guns is Hot Wheels cars. Mattel’s gross billings for vehicles, including Hot Wheels, jumped 17% in the first quarter from a year earlier. The action figures, building sets and games division also is doing well, with a gain of 21%.
All that helped push sales up 4% in the quarter, making up for an 8% slide in doll billings, including Barbie, and a 16% tumble for Infant, toddler, and pre-school toy billings, including Fisher-Price.
Mattel posted net income of $61 million in the first quarter, reversing a loss of $40.3 million, a year ago, helped by a revaluation of its Mattel163 unit. But it had an operating loss of $102.7 million, almost doubling from a year earlier. That stemmed from higher advertising spending, lower gross profit, and higher selling, general and administrative expenses.
A positive view
Morningstar’s Katz has a bullish outlook on Mattel. She predicts the company will enjoy adjusted returns on invested capital, including goodwill, of 13% on average over the next five years, well above her 8% estimate for weighted cost of capital.
Mattel has an edge in intangible assets that “arises from its long-lived brands that have consistently resounded with customers, the ability to market its products effectively, and an engrained distribution network,” Katz said.
“This has surfaced in robust market share, historically stable pricing power, the skill to win licensing partnerships, and symbiotic wholesaler/retailer relationships.”
So Mattel may soon be toying with strong success.
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