Toymaker monolith Mattel’s (MAT) stock is up nearly 20% since January, but this may not be a one-off but the beginning of a total makeover. Other stocks like Hasbro could benefit too.
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Beyond an alternative source of electricity for residential homes, solar-powered vehicles, smart cities,
- Unless you’ve been living under a rock, you’ve doubtlessly heard about the Barbie movie’s massive success.
- Less than a week after opening, the film grossed $382 million globally
- The movie is likely to maintain that momentum with lots of ‘merch’ sales for Mattel
DID YOU KNOW?
Barbie is a big earner for Mattel, representing more than a quarter of total sales. Barbie earned the company $1.5 billion in annual sales in 2022, out of 5.4 billion in total.
For investors, Barbie’s substantial success may represent a pivot to Mattel’s core operational strategy and, ultimately, a new paradigm for early investors.
Barbie might mean Mattel stock is undervalued
Historically, Mattel’s focused on toy manufacturing through its intellectual property catalog and licensing rights to make toys from third-party properties like Despicable Me and Disney Princesses.
The bigger picture is Mattel has been largely constrained by the industry’s cyclical nature and pandemic-induced supply chain crunches and lagging consumer sentiment as recession fears slash spending.
Toys are discretionary products susceptible to market fluctuations and shifting consumer preferences. That sensitivity is evident in Mattel’s long-term chart, as the post-90s toy craze faded throughout the 2000s despite a bump around 2014.
Today, Mattel still trades at less than half its mid-90s value:
Source: Morningstar
Barbie’s success represents a new opportunity for growth and expansion: franchising its existing properties into further film adaptations and media spin-offs. In a New Yorker interview, Mattel CEO Richard Dickson emphasized that, in his eyes, “brand immersion is the everything moment.” And if there’s something Mattel has in spades, it’s brands and immersion opportunities.
In addition to Barbie, the company’s extensive brand catalog is ripe for franchising possibilities and includes:
- Hot Wheels (the next Fast and Furious franchise, possibly?)
- Perennial film favorite Toy Story
- Barney, an “adult-focused” adaption of which is already in development
- He-Man and the Masters of the Univers
You’ll no doubt notice a trend with this selection – although Mattel has a robust of child-focused properties, much of its catalog ripe for franchising is comprised of nostalgia-heavy throwbacks that harken back to Mattel’s mid-90s heyday.
Hasbro doing it too
For proof of success, one has to only look at the widely panned Hasbro (HAS) Battleship adaptation. Although critics and audiences alike hated the film, scoring it at an abysmal 33% on Rotten Tomatoes, it nevertheless grossed $300 million in theaters, more than $100 million beyond its bloated budget.
Investors interested in diversifying across the toy/film franchising universe can, of course, also invest in Hasbro. The company’s played in the multimedia sandbox longer than Mattel and its existing franchise catalog includes Transformers, My Little Pony, and GI Joe. Not one to rest on their laurels, the company’s taken notice of Barbie’s breakaway success and is currently developing more GI Joe films, Monopoly and Clue adaptations, a Play-Doh film, and a much-anticipated Power Rangers venture with Netflix (NFLX).
Gap and Crocs riding Barbie's coattails
Investors bullish on Barbie specifically have additional opportunities to consider. Alongside commercial film success comes a glut of marketing and licensing opportunities, and Barbie is no exception.
Beyond baseline toy sale boosts further buoying Mattel, the company teamed up with clothing company Gap (GPS) and flip-flop favorite Crocs (CROX) to license and produce apparel for the film.
This underscores the potential nascent in Mattel’s franchising chances, as revenue streams extend beyond simply box office sales, and a successful film can bring in cash from a wide variety of operations. Furthermore, it allows investors to reap the benefits of Mattel’s wise pivot.
Conclusion
Although many film buffs lament the apparent lack of studio creativity these days, as they seem to prefer endless sequels and licensing to original content, there’s no denying the pure profitability in this approach.
Barbie may have come along at an auspicious time when moviegoers are flocking to theaters in the post-pandemic wake as the economy seems to rebound and renew global goodwill. Still, external factors aren’t the sole cause of Barbie and Mattel’s runaway success.
Instead, Mattel’s made a shrewd series of calculations, which paid off. While the future remains uncertain, coupling 90s nostalgia with a deep well of franchising opportunities seems like a sure bet for Mattel – and bullish investors.
