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Everyone Is Talking About Mattel Stock. But This Top Toy Stock Is Beating It at Its Own Game.

Motley Fool - Wed Aug 2, 2023

With the enormous success of the Barbie movie this summer, Mattel's (NASDAQ: MAT) stock is back on investors' radar. The toy company has seen better days, but this movie might fuel the next stage in Mattel's story, and investors want to gain the maximum benefit.

Zooming out to see the bigger picture, though, there's another company that's stolen the spotlight from Mattel before. Hasbro(NASDAQ: HAS) has been a much bigger success than Mattel in recent years, and while it's also been struggling with recent retail challenges, it's setting up a strategy to revitalize its business and get back to growth. Let's see why investors might want to check out Hasbro.

Always second place

Hasbro's been around much longer than Mattel, beginning in operation in 1923, although it didn't start making toys until the 1940s, which is also when Mattel got started.

Its first important brand was Mr. Potato Head, and it has since created other beloved brands, including G.I. Joe, Transformers, and My Little Pony. To my mind, those still aren't quite at the same level as Mattel's formidable lineup, which includes Barbie, Hot Wheels, and Fisher-Price.

Apparently, it's not just me, as according to Statista, every single one of those has more brand value than any of the Hasbro brands except Nerf. (Lego's lead is astounding, but that's for another conversation.)

Toy brand values.

Image source: Statista.

It's not surprising that for decades, Mattel brought in much higher sales than Hasbro. But that all changed in the years leading up to the pandemic.

HAS Revenue (Annual) Chart.

Data source: YCharts.

Stealing Mattel's thunder -- and licenses

Mattel's glory fell through a series of missteps that included difficulties updating its iconic brands into a new age and an accounting scandal. In an effort to bring its brands up to date, it launched a doll collection that was similar enough to the Disney (NYSE:DIS) Princess line for Disney to pull its license and hand it to Hasbro. That precipitated a revolving door of four chief executive officers to clean up the mess, ending with the hiring of Ynon Kreiz in 2018. He crafted a turnaround strategy that has demonstrated real progress, culminating in the winning back of the Disney Princess license last year and now the dramatic triumph of the Barbie movie.

Hasbro still has the licenses for other Disney franchises, including Indiana Jones, the Marvel characters, and Star Wars. But in general, it's taking a bit of a different direction.

Turning to gaming to beat the other players

Both Hasbro and Mattel have come to understand that for any toy company to stay relevant in this century, it's got to diversify beyond toys.

Mattel is doing that through its media ventures, such as the Barbie movie, with a slate of programming on the big and small screens.

Hasbro has done this successfully as well, with its Transformers and My Little Pony films and other content. But what differentiates it, especially since these brands are less valuable than Mattel's, is its focus on gaming. On the above list, Hasbro's most important brand is Magic: The Gathering, which is a card game that Hasbro has developed into a hugely popular digital game. It also owns the Dungeons and Dragons franchise, and it's continuing to release content and gaming based on these brands as well as others.

Despite its creative strategy, Hasbro is dealing with the same drop in overall toy sales as Mattel. Sales fell 14% from last year in the 2023 first quarter, and net loss was $22 million, after a $61 million profit last year. In the gaming segment, however, revenue increased 12%, and it was the only segment that rose rather than fell.

Mattel already reported its second-quarter results, which included a 12% sales decline from last year, bit it also reported a return to positive net income, with $27 million in profit. Hasbro reports second-quarter earnings on Thursday. It's expecting a single-digit revenue decline for the full year and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to be little changed.

Which toy stock is the better buy?

Mattel has stumbled over the past few years, but it still has the brands to beat. Hasbro took advantage of its fall, but as Mattel gets back into better shape, it may get back into the lead.

Neither of these stocks looks like it's going to explode any time soon. They're both dealing with inflation and industry sales declines, and they've both made cost-cutting a priority.

One advantage Hasbro has over Mattel, and it's a significant one, is that it pays a dividend. And not just any old dividend, but one that yields 4.3% at the current price. That could make it a compelling buy for income investors even right now.

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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool recommends Hasbro. The Motley Fool has a disclosure policy.

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