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Is Mattel Poised to Benefit as "Barbie" Closes in on $1 Billion at the Box Office?

Motley Fool - Sat Aug 5, 2023

After a months-long marketing campaign, the movie Barbie appears to be a smash hit. Just two weeks after its release, the film has generated almost $800 million in global box office sales, putting it on a trajectory to eclipse $1 billion.

While this performance bodes well for Hollywood, one of the more subtle investment opportunities revolves around toy manufacturers. Mattel(NASDAQ: MAT) is home to the Barbie brand. Given the hype around the film, it is natural to think about how this may impact Mattel's business. While there could be an initial surge in demand for Barbie dolls and its ancillary products, there are also some reasons to believe there will be long-term tailwinds.

Let's dig into Mattel's current state of affairs and assess whether the stock looks like a good buy right now.

A trip down memory lane

Barbie hit theaters on July 21 and expectations were sky-high. Box office projections for the film were between $90 million and $110 million. During opening weekend the Warner Brothers movie raked in an eye-popping $155 million. And that was just domestically.

There are a few things that come to mind as to why films like Barbie perform so well. Chiefly, these types of movies appeal to broader audiences. Another way of saying this is that movies built around franchises and brands such as Barbieare for everyone.

While these films are often marketed as juvenile, there is something more powerful at play. These movies bring back a sense of nostalgia for young adults, parents, and even grandparents who may have played with or collected the toys at some point.

A parallel here is looking at how well The Super Mario Bros. Movie performed earlier this year. According to data compiled by Box Office Mojo, the movie based on the beloved Nintendo franchise was the highest opening-weekend box office in 2023 until Barbie. Moreover, as of the time of this article, it remains the top-performing film of the year, generating nearly $1.4 billion in global ticket sales with nearly 60% coming from overseas.

These figures really underline how popular these brands and franchises are on a global and cultural scale. While all of this is good for the movie industry, what does it mean for Mattel?

A child sitting in their bedroom playing with dolls and toys.

Image source: Getty Images.

What does this mean for Mattel?

One of the most obvious benefits for Mattel is selling more Barbie dolls. However, it's important to keep in mind that the company has been selling these dolls for several decades. In fact, Barbie was the No. 1 performing toy brand in both 2020 and 2021.

Oftentimes, though, when a movie or television show is made about a famous brand, toy manufacturers tend to create new products revolving around the new project. Barbie is no different. Mattel has an entire lineup of new Barbie products specifically for the movie. In fact, the company has struck 165 product partnerships including one with Warner Music Group to release an album featuring the movie's soundtrack.

So while the consumer-related products should help fuel growth in the second half of the year, Mattel may have yet to reap the full long-term benefits from the summer blockbuster. Mattel Chief Operating Officer Richard Dickson echoed this sentiment by stating on the company's July earnings call that the company expects "significant growth for Barbie in the second half and to be positive for the full year, certainly with the halo effect of the movie and its economics benefiting Mattel over the next several quarters and years."

Given that the company is home to myriad brands and franchises, Mattel may have just unlocked its next big growth driver. According to public resources, the company currently has over a dozen films in the works that feature its brands.

Should you buy the stock?

There are a couple of different valuation ratios that should be analyzed when assessing Mattel stock. Currently, Mattel stock trades for a forward price-to-earnings (P/E) ratio of 18 and a price-to-sales (P/S) ratio of 1.5.By comparison, one of Mattel's closest competitors, Hasbro, trades for a forward P/E of 14 and a P/S ratio of 1.6. While the P/S profile of the two toy companies is in line, the capital markets are placing a premium on Mattel's future growth.

Investors should keep in mind that Mattel stock is already up over 18% in 2023 and 6% in just the last month. Given the anticipation and hype around Barbie throughout much of the year, it's not entirely surprising to see the stock is up.

A prudent approach could be to dollar-cost average into Mattel stock over time. But given that the stock is hovering around a 52-week high, it is likely best to wait for any potential momentum traders to get out. Initiating a position on a pullback could be one option. Or one might wait until the next earnings call to hear any of management's latest commentary on how Barbie has impacted the business.

While one movie's success is not necessarily a leading indicator of how well future projects will perform, it is hard to discount how powerful these brands are across the globe among a variety of age demographics. By replicating the formula of turning more of its brands into big-budget films, the company has a real shot at becoming more than just a toy manufacturer and evolving into a legitimate global media conglomerate.

If there is one thing the film has proven, it's the following: It's Barbie's (and Mattel's) world, and we're all just living in it.

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Adam Spatacco has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Warner Bros. Discovery. The Motley Fool recommends Hasbro and Nintendo. The Motley Fool has a disclosure policy.

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