Mattel Barbie brand dolls are arranged for a photograph in Tiskilwa, Illinois, U.S. on Monday, April 16, 2018.
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With its toy business on better footing, Mattel said Friday it was looking to further expand its presence in other segments such as consumer products, digital games and filmmaking.
The toymaker hopes this strategy will allow it to tap into consumer enthusiasm for toys like Barbie, Hot Wheels and Uno, and provide new ways for kids and adults to experience its brands.
“The first part of the turnaround was to restore and then improve profitability,” CEO Ynon Kreiz told CNBC in an interview. “Ensuring the toy business is on solid footing and strengthening our balance sheet. That has been the goal and we have always said the opportunity to capture full value is medium to long term.”
On Friday, Mattel presented this new strategy in a pre-recorded presentation for analysts. It’s a playbook that many others in and outside the toy industry have used – taking beloved franchises and making them available to consumers across multiple segments.
This strategy has proven its effectiveness. Delivering new entertainment content, like movies, TV shows, or video games, keeps the brand in tune with the cultural times and helps drive sales of a variety of items, from clothing to homewares.
Take Barbie. The dolls have been on toy shelves for more than 60 years, yet the brand posted its all-time best annual sales results in 2021.
“In the case of Barbie, which is our best and brightest case study, it’s really about every girl’s limitless potential,” Richard Dickson, president and chief operating officer of Mattel, told CNBC. “We took that brand purpose and really branded and managed the brand to really reflect that in everything we do.”
Five years ago, Mattel re-evaluated its Barbie brand, releasing figures with more than two dozen different ethnicities and with a wider range of body types. At the same time, it introduced new lines of Barbie dolls that celebrated real women like actress Zendaya, animal activist Bindi Irwin and dancer Misty Copeland, as well as career prospects in fields such as science , politics and business.
“Evolution makes a brand relevant, but purpose makes a brand immortal,” Dickson said.
More than toys
Mattel is looking to continue innovating the Barbie brand by producing a live action movie starring Margot Robbie and directed by Greta Gerwig. It will also continue to release animated Barbie specials and bring new non-toy merchandise to stores and the digital realm.
It is a strategic rival Hasbro knows this well, and it has recently come under fire for its use.
Activist investor Alta Fox Capital Management, which owns a 2.5% stake in Hasbro, named five directors to Hasbro’s board and wrote a letter to shareholders, which was distributed Thursday, urging Hasbro to stand up. separating from Wizards of the Coast and digital gaming, its fastest-growing segment, and asking the company to re-evaluate its strategy of using entertainment to drive toy sales.
Notably, Hasbro owns and operates a studio and invests heavily in its entertainment productions. This is different from Mattel’s model which uses third-party studios and distributors to create content, but minimizes financial risk.
Hasbro has balked at the idea that its current strategy isn’t working, and likewise has analysts. Also having the Wizards unit, which includes brands like Dungeons & Dragons and Magic: The Gathering, could actually help Hasbro weather the storm of losing the Disney Princess license to Mattel, a lucrative franchise in the gaming industry. toy.
Mattel lost that license in 2016 and it left a huge hole in the company’s business portfolio that it was only recently able to recover from.
Investors seem to agree with what they’ve learned about Mattel’s strategy so far. Shares of the company are up more than 15% since the start of the year. On Thursday, the stock hit a 52-week high at $25.71, and shares were down less than 1% in trading on Friday.
Mattel’s average stock target price is $30.96, or about 24% earn from where it is currently trading, according to FactSet. Linda Bolton Weiser, analyst at DA Davidson, is even more optimistic. It raised its price target to $45 from $38 on Monday, citing the potential for growth in the coming years.
Much of his optimism is due to Mattel’s updated sales forecast, which calls for 8% to 10% growth in 2022, and a high single-digit pace the following year.
The robust forecast follows a four-year turnaround that began when Kreiz took over the reins in 2018. At that time, he was the fourth CEO in four years to take over the company. Fisher-Price, Barbie and American Girl were struggling to adapt to changing consumer tastes, and Mattel, more than most toymakers, was reeling from the bankruptcy of Toys R Us.
As 2022 approaches, Mattel is on a stronger financial footing. It reduced its debt from $2.85 billion in 2018 to $2.57 billion in 2021. With an improved debt-to-adjusted EBITDA ratio, Kreiz expects Mattel to be able to achieve a credit rating of quality this year, which will give him access to more credit at a lower cost.
Mattel’s outlook hinges on expected sales gains in its toy business, but its post-turnaround strategy will also help.
Already, the toy company has seen success partnership with the French fashion house Balmain to create a collection of ready-to-wear fashion and accessories and auctioned off three unique non-fungible Barbie tokens.
In the past, Mattel has partnered with General Mills, L’Oreal and Nike to produce limited edition products based on its intellectual properties. Kreiz said the company plans to deepen this market in the future. It is also exploring opportunities for immersive brand experiences at points of sale.
In addition to generating revenue, the strategy complements its toy offerings as it provides consumers with a new way to engage with Mattel’s brands.
Digital entertainment, including video games, mobile games and NFTs, is another opportunity.
The Mattel team notes that digital gaming alone is a $170 billion industry and it’s a space the company is just beginning to explore. Mattel already has mobile games centered around Uno and Phase 10 as well as a racing video game, Hot Wheels Unleashed, but is looking to expand that business.
Rival Hasbro has seen significant benefits in launching digital games like Magic: The Gathering Arena. In 2021, the company’s Wizards of the Coast unit and digital games accounted for $1.28 billion in sales, or 20% of the company’s total revenue.
Mattel is also getting into the NFT space.
“This represents a significant opportunity to generate what I would call high-level engagement with our iconic brands,” Dickson said. “I think what makes us unique in the NFT space is that we are globally recognized iconic brands that, with the right interpretation and execution, can become incredibly exciting and incredibly valuable.”
Hot Wheels was the first major toy brand to expand into the world of NFTs with three unique tokens inspired by the original Hot Wheels Garage Series, a highly sought-after subset of vehicles for collectors. Another collection, which included more than 90,000 NFTs, sold out within minutes, Dickson said, with tens of thousands of customers still waiting in virtual queues to buy them.
By exploring these other segments, Mattel is able to not only generate excitement for its primary customers, children, but also reach out to older generations. By targeting consumers who grew up with Barbie, but are not interested in buying traditional non-collectible dolls, Mattel is able to continue to keep the brand in the mainstream and add urgency to purchases with exclusive and limited edition items.
Content is key
This flywheel of toys, entertainment, consumer products and digital often intersects and leads back to each other. The Barbie toy brand, for example, powers entertainment content and that entertainment content, in turn, powers toy sales.
Notably, while Mattel created its film division in 2018, it won’t release a feature in theaters until 2023.
This year the company is production begins on her Barbie movie with Warner Bros. and a Masters of the Universe movie with Netflix. There are a dozen other projects in development, including films based on Hot Wheels, Magic 8 Ball, Major Matt Mason, Rock ‘Em Sock ‘Em Robots, Uno, and Barney.
The strategy of its nascent film division is to rely on third-party companies to finance each project and to partner with a studio and a distributor. This strategy helps to mitigate the company’s financial risk. But that doesn’t mean Mattel is indifferent to these projects.
“We are creatively involved to ensure that the DNA and brand attributes and values are there,” Kreiz said. “We are not film distributors or film financiers, but we work with the best.”
Kreiz has over two decades of experience in the media and entertainment industries, particularly children’s entertainment. He is the former CEO and Chairman of Maker Studios, which was sold to Disney in 2014. Prior to that, he was Chairman and CEO of Endemol Group, one of the largest independent television production companies in the world.
Mattel Inc. Hot Wheels brand Matchbox cars are set up for a photograph in Tiskilwa, Illinois, U.S. on Monday, April 16, 2018.
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In addition, Mattel will offer more than a dozen series and specials on networks or streaming services this year. He has more than 20 television projects in production and about 25 in development, Kreiz said.
“This opportunity is not for selling more toys,” he said. “When we launch a movie or make a TV show, the mandate is to create great content that people want to watch and to create successful accretive verticals so that we can attract the best talent, the best creatives and partners. who want to make special experiences.”
“We know that if this project is successful, good things will happen,” he said. “We’ll also sell more toys, but that’s not the original goal. We want to make great experiences and content that people want to watch.”
Kreiz cited Lego and Disney’s Marvel as examples of companies that have followed similar paths to create quality content that reinvents the source brand and rejuvenates consumer passion for the products. In addition to making critically acclaimed films that flourished at the box office, Disney and Lego saw strong merchandise sales from these projects.
Mattel’s projects so far boast some really big talent, like Tom Hanks for the movie Major Matt Mason and Vin Diesel for the Rock ‘Em Sock ‘Em Robots project.
“These are partners who were fans [of Mattel’s brands],” he said.