Mattel looks to motion pictures, digital gaming and NFTs for its next leg of growth

With its toy enterprise on higher footing, Mattel stated Friday it’s wanting to additional broaden its presence into different segments like shopper merchandise, digital gaming and filmmaking.

The toymaker hopes this technique will permit it to faucet into shoppers’ enthusiasm for toys like Barbie, Hot Wheels and Uno, and ship new methods for youngsters and adults to expertise its manufacturers.

“The first half of the turnaround was to restore and then enhance profitability,” CEO Ynon Kreiz instructed CNBC in an interview. “Making certain the toy firm is on stable basis and strengthen our stability sheet. This has been the main focus and we have all the time stated the chance to seize full worth was mid to long run.”

On Friday, Mattel laid out this new technique in a pretaped presentation for analysts. It is a playbook that many others in and exterior of the toy trade have used — take beloved franchises and make them out there to shoppers throughout a number of segments.

This technique has been confirmed efficient. Providing new leisure content material — like motion pictures, tv exhibits or video video games — retains the model within the cultural zeitgeist, and helps gasoline gross sales of a range of objects, from attire to housewares.

Take Barbie. The dolls have been on toy cabinets for greater than 60 years, and but the model posted its finest full-year gross sales outcomes of all time in 2021.

“In the case of Barbie, which is our greatest and shining case research, it is actually in regards to the limitless potential of each woman,” Richard Dickson, president and chief working officer at Mattel, instructed CNBC. “We’ve embraced that model objective and actually marked and managed the model to really mirror that in all the pieces that we do.”

Five years in the past, Mattel reevaluated its Barbie model, launching figures with greater than two dozen totally different ethnicities and with a wider vary of physique sorts. At the identical time it launched new traces of Barbie dolls that celebrated actual ladies like actress Zendaya, animal activist Bindi Irwin and dancer Misty Copeland in addition to supplied extra profession paths in areas like science, politics and enterprise.

“Evolution makes a model related, however objective makes a model immortal,” Dickson stated.

It is a technique rival Hasbro is aware of properly, and one it has not too long ago come below hearth for using.

Activist investor Alta Fox Capital Management, which owns a 2.5% stake in Hasbro, nominated 5 administrators to Hasbro’s board and penned a letter to shareholders, which was distributed Thursday, urging Hasbro to spin off Wizards of the Coast and digital gaming, its fastest-growing section, and asking the corporate to reevaluate its technique of utilizing leisure to drive toys gross sales.

Notably, Hasbro owns and operates a studio and invests considerably in its leisure productions. This is totally different from Mattel’s mannequin of using third-party studios and distributors to create content material, however reduce monetary danger.

Hasbro has balked on the notion that its present technique is just not working and, so too, have analysts. Also having the Wizards unit, which incorporates manufacturers like Dungeons & Dragons and Magic: The Gathering, would possibly truly assist Hasbro climate the storm of dropping the Disney princess license to Mattel, a profitable license within the toy trade.

Mattel misplaced this license in 2016 and it left an enormous gap within the firm’s enterprise portfolio that it has solely not too long ago been ready to get well from.

Investors seem to be on board with what they’ve discovered about Mattel’s technique thus far. Shares of the corporate are up greater than 15% for the reason that starting of the 12 months. On Thursday, the inventory hit a 52-week excessive of $25.71, and the shares have been down lower than 1% in buying and selling on Friday.

The common goal worth for Mattel’s inventory is $30.96, which is a few 24% acquire from the place its presently buying and selling, in accordance to FactSet. Linda Bolton Weiser, an analyst at D.A. Davidson, is much more optimistic. She upgraded her worth goal to $45 from $38 on Monday, citing the potential for growth within the coming years.

Much of her optimism is due to Mattel’s up to date gross sales predictions, which foresee growth of 8% to 10% in 2022, and a excessive single-digit tempo the next 12 months.

This sturdy forecast comes on the heels of a four-year turnaround that began when Kreiz took the helm in 2018. At that point, he was the fourth CEO in 4 years to assume management of the corporate. Fisher-Price, Barbie and American Girl have been struggling to join with altering shopper tastes and Mattel, greater than most toy corporations, was reeling from the chapter of Toys R Us.

Heading into 2022, Mattel is on stronger monetary footing. It has decreased 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 can be ready to obtain an investment-grade ranking this 12 months, which is able to give it entry to extra credit score at decrease prices.

Mattel’s outlook depends on anticipated gross sales features at its toy enterprise, however its post-turnaround technique may also contribute.

Already, the toy firm has seen success partnering with French fashion house Balmain to create a ready-to-wear vogue and equipment assortment and it put up three one-of-a-kind Barbie nonfungible tokens at public sale.

In the previous, Mattel has partnered with General Mills, L’Oreal and Nike to produce limited-edition merchandise primarily based on its mental properties. Kreiz stated the corporate plans to delve deeper into this market going ahead. It can also be taking a look at alternatives to have immersive model experiences inside retail places.

In addition to driving income, the technique enhances its toy choices because it offers a brand new means for shoppers to interact with Mattel’s manufacturers.

Digital leisure — together with video video games, cell video games and NFTs — are one other alternative.

Mattel’s workforce notes that digital gaming alone represents a $170 billion trade and it’s a house that the corporate has solely simply begun to discover. Mattel already has cell video games centered round Uno and Phase 10 in addition to a racing online game, Hot Wheels Unleashed, however is wanting to broaden this space of its enterprise.

Rival Hasbro has seen vital upside in launching digital video games like Magic: The Gathering Arena. In 2021, the corporate’s Wizards of the Coast and digital gaming unit accounted for $1.28 billion in gross sales, or 20% of the corporate’s complete income.

Mattel can also be dabbling within the NFT house.

“It does characterize a major alternative to drive what I might name high-level engagement to our iconic manufacturers,” Dickson stated. “I feel what makes us distinctive within the NFT house is that we’re globally acknowledged, iconic manufacturers that with the correct interpretation and execution can turn out to be extremely thrilling and extremely worthwhile.”

Hot Wheels was the primary main toy model to broaden into the world of NFTs with three one-of-a-kind tokens that have been impressed by the unique Hot Wheels storage collection, a extremely wanted subset of automobiles for collectors. Another assortment, which included greater than 90,000 NFTs, offered out in minutes, Dickson stated, with tens of hundreds of clients nonetheless ready in digital queues to purchase them.

In exploring these different segments, Mattel is ready to not solely generate pleasure for its core clients, youngsters, but in addition attain older generations. By concentrating on shoppers who grew up with Barbie, however aren’t excited by shopping for conventional noncollectable dolls, Mattel is ready to proceed to maintain the model within the mainstream and add urgency to purchases with unique and limited-edition objects.

This 12 months, the corporate is beginning production on its Barbie film with Warner Bros. and a Masters of the Universe movie with Netflix. There are a dozen extra initiatives in improvement, together with movies primarily based on Hot Wheels, Magic 8 Ball, Major Matt Mason, Rock ‘Em Sock ‘Em Robots, Uno and Barney.

The technique for its fledgling movie division is to lean on third-party corporations to finance every venture and companion with a studio and distributor. That technique helps to mitigate the corporate’s monetary danger. But, that does not imply that Mattel is arms off when it comes to these initiatives.

“We are concerned creatively so we will be sure that the DNA and model attributes and values are there,” Kreiz stated. “We usually are not movie distributors or movie financiers, however we’re working with the perfect.”

Kreiz has greater than twenty years of expertise within the media and leisure industries, notably youngsters’s leisure. He is former CEO and chairman of Maker Studios, which was offered to Disney in 2014. Before that he was chairman and CEO of Endemol Group, one of the world’s largest unbiased tv manufacturing corporations.

Additionally, Mattel can have greater than a dozen collection and specials on networks or on streaming companies this 12 months. It has greater than 20 tv initiatives in manufacturing and round 25 in improvement, Kreiz stated.

“This alternative is just not accomplished to promote extra toys,” he stated. “When we launch a film or make a TV present, the mandate is to make nice content material that folks need to watch and construct accretive verticals which are profitable so we will entice the perfect expertise, the perfect creatives and companions that need to make particular experiences.”

“We know that if this venture is profitable, good issues will occur,” he stated. “We may also promote extra toys, however it’s not the preliminary objective. We need to make nice experiences and content material that folks need to watch.”

Kreiz pointed to Lego and Disney’s Marvel as examples of corporations who’ve adopted comparable paths to create high quality content material that reimagines the supply model and rejuvenates shopper ardour for merchandise. In addition to making critically acclaimed movies which have thrived on the field workplace, Disney and Lego have seen sturdy merchandise gross sales consequently of these initiatives.

So far, Mattel’s initiatives are touting some fairly huge expertise, like Tom Hanks for the Major Matt Mason film and Vin Diesel for the Rock ‘Em Sock ‘Em Robots venture.

“These are companions who used to be followers [of Mattel’s brands],” he stated.