With the world on lockdown and people confined to their homes, this much-beloved toymaker has flown largely under the radar but could prove a smart investment
Whether you were an 80’s fan of Action Man, a millennial master of Beyblade, or a more modern enthusiast of gaming-sensation Fortnite, it’s likely that you have owned a Hasbro (NASDAQ: HAS) product at some point.
Best known for its toys, which includes the Transformers, and Disney-owned (NYSE: DIS) “Star Wars” franchises, this national favorite has seen better years. Making toys since its first product in 1952, Mr. Potato Head, this company has experienced less than 1% growth over the past 5 years, and is down more than 20% year-to-date.
However, could the coronavirus pandemic have created a unique opportunity for this toymaker?
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Stuck at home
With 48 million children in the U.S. under the age of 11 suddenly forced out of school to isolate at home, it’s a pretty tough time to be a parent. There is only so much that can be done with a Netflix (NASDAQ: NFLX) account, or a Sony (NYSE: SNE) Playstation console. Kids have always and will always need toys.
Hasbro could be one of the main beneficiaries of this.
As recently as March 23, the toymaker saw its stock jump 12% off the back of reports from its CEO, Brian Goldner, that toy demand was soaring amidst the COVID-19 pandemic. Despite factories in China being forced to close because of the virus, they have since reopened. The stock had taken a pounding in the first 3 months of the year due to the virus and is still down more than 17% in the last month, but all signs are pointing towards a growing demand for toys.
If you have Instagram or Twitter (NYSE: TWTR), you will also notice that it’s not just kids who are flocking to Hasbro toys, but adults too, who are looking to board games and puzzles to break the monotony of quarantine-life. It seems everyone is looking for a distraction right now, and Hasbro’s partnership with Amazon (NASDAQ: AMZN), an established e-commerce platform, as well as a reopened production line could spell big profits for Hasbro this quarter.
An established brand
Despite this ray of hope for Hasbro, there is no sugarcoating the fact that the company, along with many others, is in for a tough year. The coronavirus pandemic has shaken up any plans for the company’s return to 2017-levels of profit this year, and may well lead the economy into a recession. This would certainly hamper any ideas of hitting the 2017 highs of $5.2 billion of annual sales and $810 million of operating profit.
However, Hasbro is an American institution. Its mission of ‘Creating the World’s Best Play Experiences’ has delivered for generations. Every day, children have fun with Lightsabers, Twister, Monopoly, Jenga, and countless other Hasbro toys… just as their parents did decades before them. These deep-rooted happy memories are both massively valuable and impossible to measure. Today, Hasbro has transformed itself beyond games to leverage its brands on the big screen, TV, and online, and shows no signs of slowing down.
2019 was not even a bad year, as proven by its February 11 earnings call. Net revenue rose nearly 3% to $1.43 billion last quarter, with earnings per share coming in at $1.24, well above expectations. Net income even hit $267.3 million, a massive leap from the $8.8 million a year earlier.
However, earnings marginally missed analyst estimates, but the wins far outset the losses in this case, and Hasbro has proven time and again that it has the ability to sell its products.
Never underestimate Baby Yoda
What can we say about Baby Yoda that hasn’t already been said? He’s cute, he’s funny, and he sells, there’s not much else to it. The breakout star of Disney+’s ‘The Mandalorian’ is a firm favorite among “Star Wars” fans and non-fans alike.
The very confirmation last December that Hasbro would be producing these toys sent its stock price jumping, so when the coronavirus pandemic begins to cool and normality returns, Baby Yoda toys will be flying off shelves and Hasbro will be counting its money.
Of course, this is all speculation for now, but there’s no denying the importance of Hasbro’s partnership with all things Disney, including Star Wars, Pixar, and Marvel. These third-party sales rose 24% in 2019 to $1.22 billion, as Disney smashed box-office records and toys from its franchises soared in popularity. This partnership was extended recently, alongside the company’s long-standing deal with Comcast (NASDAQ: CMSCA), which means that Hasbro has no shortage of toys to keep on the production line.
Hasbro has not seen much reward for the hard work that goes into making the brand so successful in recent years, and just when things seemed to be getting on track, the coronavirus hit. However, as people continue to flock to their old toys, and spend time with their children’s new ones, it is likely that a newfound appreciation could occur for Hasbro products among consumers of all ages.
And if that doesn’t work, then Baby Yoda merchandise will be available to buy from May 2020, and here at MyWallSt, we’re long on all things Baby Yoda-related.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.