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Does the Shift of "Barbie" to Streaming Mean Bad News for Mattel Stock?

Motley Fool - Fri Sep 29, 2023

Mattel (NASDAQ: MAT) rode the Barbie wave as everyone eagerly awaited the movie featuring the world's most famous doll, then rushed out to theaters for the July premiere. Since then, Barbie has become this year's highest-grossing film globally, with receipts topping $1.4 billion. And Mattel shares have advanced more than 20% this year.

Today, the party isn't completely over for Barbie, but she may be reaching the last couple of hours on that hot pink dance floor. Barbie, the movie, is shifting to streaming, and that means it no longer is dominating the big screen.

Does this equal bad news for toymaker Mattel? Let's find out.

Barbie and Ken dance on a pink dance floor.

Image source: Mattel.

A time of transition

First, it's important to keep in mind that this transition is a perfectly normal part of the movie business. After a certain period of time, movies move from theaters to streaming -- for rental. Then, eventually, they appear for free for subscribers of certain streaming services.

Barbie isn't there yet. If you want to see the movie at home right now, you still have to pay about $25.

Now let's consider how much the movie is bringing in for Mattel. Box-office receipts and merchandising opportunities should generate more than $125 million this year, Chief Executive Officer Ynon Kreiz told Yahoo Finance. And the operating margin from this revenue will be about 60%.

This amount doesn't seem huge, compared to the overall billings for the Barbie brand last year, which came in at more than $1.4 billion. (Billings represent the sales invoiced to toy retailers.) But the operating margin is something to cheer about, especially considering that Mattel's overall operating income margin last year was a little more than 12%.

This means Mattel has been able to generate high levels of profit from the movie, as well as associated products. This is good news. And here's what's even better news: Mattel doesn't see this as a short-term opportunity. Instead, the company aims to keep the Barbie wave going by releasing more products related to the movie -- and building out the Barbie brand into something beyond just the doll sold to kids or collectors.

Mattel signed more than 165 consumer product partnerships related to Barbie, with the famous doll featured on everything from T-shirts to TV shows.

Hot Wheels may be next

All of this isn't ending with Barbie. Mattel plans on releasing more films and products linked to some of its other popular toys, such as Hot Wheels racing cars. By doing this, Mattel's Kreiz aims to maximize the revenue power of the company's intellectual property.

Clearly, this strategy worked for Barbie, and the revenue potential could continue in the months to come. That said, it's too early to predict whether revenue growth linked to the movie will continue for the long term. After all, once the movie leaves the spotlight, teens and adults may forget about Barbie and move on to something new.

But even if that happens with Barbie and in the future with Mattel's other potential movies, that's OK. If these movie ventures are profitable for Mattel and allow it to expand the revenue potential of top brands -- even temporarily -- they offer new sources of growth.

At the same time, Mattel can continue to count on its bread and butter -- toys -- as a steady motor for earnings. Even if adults lose interest in Barbie, kids probably won't. Barbie is the world's No. 1 doll, according to research firm Circana.

All of this means Barbie's shift to streaming isn't bad news for Mattel. And even if Barbie-related products eventually see declines, this top toy company still can win over time, thanks to its toy brands -- and the new effort to expand the revenue power of these brands.

Meanwhile, Mattel's shares are trading for less than 20x forward earnings estimates, which looks very reasonable, considering all of the points above. And that's why I say Mattel is a buy, and I wouldn't worry about the stock as Barbie leaves the dance floor -- or movie theaters.

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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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