After everything that has happened this year, bringing a little bit of extra Christmas joy will be on the minds of many parents come December. The countdown to the festive season has now properly begun and that includes searching for the best toys, gizmos, and gadgets to gift to the younger (and older) members of the family.
In the battle of the toymakers, there are only 2 names that stand out: Mattel (NASDAQ: MAT) and Hasbro (NASDAQ: HAS). So we ask, out of these fun-filled Stockings, which is a better investment right now?
Bull and bear case for Mattel
Mattel is a toy company that has given the world Barbie, Hot Wheels, and Polly Pocket, and much more. Whilst many of its toys have held icon status for several generations, Mattel has been struggling to keep up with rival Hasbro over the last few years as net sales have been declining since 2014, only stabilizing in 2019 when a new CEO was appointed.
As with all toy businesses, Mattel has struggled to compete with the growing trend of digital entertainment as the main force of distraction for children. COVID-19 didn’t help things, forcing the closure of traditional brick-and-mortar stores and causing Mattel’s revenue to fall by 14% year over year (YoY) in the first half of 2020.
Yet, not all hope has gone; the UNO card-game-maker has seen renewed interest in Barbie with the brand claiming the top toy spot in the U.S. for five consecutive weeks as it grew its e-commerce business. In fact, Mattel has been weathering this pandemic rather well with impressive results in Q2 and Q3 helped along by its continued plan of reducing overall operating costs.
In Q2, operating income loss was 10% less YoY, whilst in Q3, investors were pleasantly surprised by the 10% increase in net sales YoY. This does not mean that Mattel is out of the woods yet, but it does show that 2018’s CEO appointment of Ynon Kreiz has brought in stable leadership, focused on building growth and managing a pandemic. For Q4, it wouldn’t be too much of a stretch to see point of sales (POS) increase and thus higher reported revenue as the company pulls itself back on track in time for Christmas.
Bull and bear case for Hasbro
Hasbro, founded in 1923, has its own fair share of toy icons well-loved by grandparents and grandchildren alike with Playdoh, Power Rangers, and My Little Pony numbered in its products. But Hasbro has an eye for adaptation in this new digital entertainment world — having produced six Transformers films, which span over a decade.
The Monopoly-maker reached headlines as it was the official store of the excessively cute Baby Yoda toys, or officially, ‘The Child’, which were delayed for release due to the coronavirus, halting production. Being the official merchandiser for Disney’s toy products for decades, Hasbro directly benefits from Disney’s successes. In 2019 the success of ‘Frozen 2’, ‘Marvel’, and ‘Star Wars’ caused its ‘Partner Brands’ segment to grow 24% YoY.
In 2020 so far, each quarter has seen decreases in revenue YoY with Q2 seeing a particularly hard quarter with -29% revenue growth YoY. Yet, in its most recent earnings report, Hasbro saw increases in revenue for both its Franchise Brands segment with a 4% increase and its Hasbro Gaming segment with a 3% increase.
In fact, this popular toy company has resumed 25 of its live-action productions via its eOne studio with which it produces films, music, and TV series. In addition, Brian Goldner has stated that Hasbro will be focusing on growing its gaming and entertainment business moving into 2021, showcasing more of its ability to adapt to the changing world we live in.
So, which is a better investment?
Currently, Hasbro is a better investment, mainly due to its continued focus on adaptation in a digital world and its long-established partnership with Disney. Hasbro is a company that is not going anywhere fast. On the other hand, Mattel could be a good choice for an investor willing to take on a bit of risk whilst they wait for the company to continue turning things around and start growing again.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.
Financial Writer at MyWallSt
Poppy’s favorite stock is Nvidia as she loves innovation and this stock has bags of it. Nvidia invented the GPU in 1999 and even today its immersive graphics give life to the gaming world. Poppy is also inspired by Nvidia’s ability to imagine and create positive change for the world, with its AI technology fuelling new developments in the automotive industry, the medical industry, as well as powering data centers around the world.