Mattel reveals strategy for its next phase of growth

With his toy business on track to get better, Mattel said on Friday that it is looking to further expand its presence into other segments such as consumer products, digital games and filmmaking.

The manufacturer hopes this strategy will allow them to tap into consumer enthusiasm for toys like Barbie, Hot Wheels and Uno, while providing new ways for children and adults to experience the brand. their mark.

“The first part of the turnaround is restoring and then improving profitability,” CEO Ynon Kreiz told CNBC in an interview. “Ensuring that the toy company is on a solid footing and strengthening our balance sheet. This is central and we’ve always said the opportunity to capture full value is mid to long term. term.”

On Friday, Mattel will lay out this new strategy in a pre-note to analysts. This is a pamphlet that many others inside and outside the toy industry have used – taking franchises and making them available to consumers across multiple segments.

This strategy has proven to be effective. Delivering new entertainment – like movies, TV shows or video games – keeps the brand culturally relevant and helps drive sales of a wide range of items, from clothing to homeware use.

Bring Barbie. The dolls have been on toy shelves for more than 60 years, but the brand is still posting its all-time best full-year sales results for 2021.

Richard Dickson, president and chief executive officer at Mattel, told CNBC: “In Barbie’s case, it’s the best and brightest case scenario, it’s really about every girl’s limitless potential. “We’ve embraced that brand purpose and really marked and curated the brand to truly reflect that in everything we do.”

Five years ago, Mattel re-evaluated its Barbie brand, launching characters with more than two dozen different ethnicities and with more body types. At the same time, it introduces new lines of Barbie dolls that celebrate real women like actress Zendaya, animal activist Bindi Irwin and dancer Misty Copeland, and offer more career paths in the industry. fields such as science, politics and business.

“Evolution makes a brand relevant, but purpose makes a brand immortal,” says Dickson.

It is a strategic opponent Hasbro know well, and one thing that it was recently arrested for recruitment.

On Wednesday, Activist investor Alta Fox Capital Management, which owns a 2.5% stake in Hasbro, wrote a letter to shareholders saying it plans to nominate five directors to Hasbro’s board of directors. Alta is urging Hasbro to phase out Wizards of the Coast and digital gaming, its fastest-growing segment, and is asking the company to reevaluate its strategy of using entertainment to drive toy sales. .

Hasbro has countered that its current strategy is not working, and neither have analysts. There’s also the Wizards unit, which includes franchises like Dungeons and Dragons and Magic: The Gathering, that could really help Hasbro weather the storm of loss. Disney princess license for Mattel, a lucrative license in the toy industry.

Mattel lost this license in 2016 and it left a huge hole in the company’s business portfolio that the company was only able to restore recently.

Investors seem ready with what they’ve learned about Mattel’s strategy so far. The company’s shares are up more than 15% since the start of the year. On Thursday, the stock hit a 52-week high of $25.71 per share, and the stock was up less than 1% in Friday trading.

The average target price for Mattel’s stock is $30.96, which is about 24% obtained from where it is currently trading, according to FactSet. Linda Bolton Weiser, an analyst at DA Davidson, is even more optimistic. She raised her price target to $45 from $38 on Monday, citing growth potential in the coming years.

Much of her optimism is due to Mattel’s updated sales projections, predicting 8% to 10% growth in 2022 and high single-digit rates next year.

This strong forecast comes after a four-year cycle that began when Kreiz took the helm in 2018. At the time, he was the fourth CEO of four to take control of the company. Fisher-Price, Barbie and American Girl have struggled to connect with changing consumer tastes, and Mattel, more than most toy companies, is reeling from the bankruptcy of Toys R Us.

Entering 2022, Mattel is on a stronger financial foundation. It reduced its debt from $2.85 billion in 2018 to $2.57 billion in 2021. With improved debt to adjusted EBITDA ratio, Kreiz expects Mattel to be able to achieve the rating. invest this year, which will give it access to more credit at a lower rate. cost.

Mattel’s outlook relies on projected revenue from its toy business, but its post-turnaround strategy should also contribute.

Now, the toy company has succeeded Collaboration with French fashion house Balmain to create a collection of ready-to-wear fashion and accessories, and put three one-of-a-kind impregnable Barbie tokens at auction.

In the past, Mattel has collaborated with General MillsL’Oreal and Nike to produce limited edition products based on its intellectual properties. Kreiz said the company plans to delve deeper into this market in the future. It is also looking for opportunities for rich brand experiences in retail locations.

In addition to driving revenue, the strategy complements its toy offerings as it provides a new way for consumers to interact with its brands.

Digital entertainment – including video games, mobile games and NFTs – is another opportunity.

Mattel’s team notes that digital gaming alone represents 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 Stage 10 as well as the racing video game Hot Wheels Unleashed, but is looking to expand its business.

Rival Hasbro has seen a significant upswing when it comes to digital games like Magic: The Gathering Arena. In 2021, Wizards of the Coast and the company’s digital games unit accounted for $1.28 billion in revenue, or 20% of the company’s total revenue.

Mattel is also embedding into the NFT space.

“It represents an important opportunity to drive what I call high engagement for our iconic brands,” said Dickson. “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 be incredibly exciting. and extremely valuable.”

Hot Wheels is the first major toy brand to expand into the NFT world with three one-of-a-kind NFTs inspired by the original Hot Wheels series, a highly sought-after subset of vehicles for home owners. collect. Dickson said another collection, which included more than 90,000 NFTs, sold out in minutes, with tens of thousands of customers still waiting in virtual queues to buy them.

By exploring these other segments, Mattel was able to not only generate excitement for its core customer base of children, but also reach older generations. By targeting consumers who grew up with Barbie, but are not interested in buying traditional dolls that are not collectable, Mattel is able to continue to keep the brand in the mainstream and add more reps. Purchase management with limited edition and exclusive items.

This year, the company has began production of its Barbie movie with Warner Bros. and the movie Master of the Universe with Netflix. There are dozens of other projects in development, including movies based on Hot Wheels, Magic 8 Ball, Major Matt Mason, Rock ‘Em Sock’ Em Robots, Uno, and Barney.

The strategy for their fledgling film division is to rely on third-party companies to fund each project and partner with a studio and distributor. That strategy helps to reduce the company’s financial risk. However, that doesn’t mean Mattel is over-the-top when it comes to these projects.

“We engage creatively so we can ensure that the attributes and values ​​of the DNA and the brand are all there,” said Kreiz. “We’re not a movie distributor or a movie sponsor, but we’re working with the best people.”

Kreiz has more than two decades of experience in media and entertainment, especially 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 the chairman and chief executive officer of Endemol Group, one of the major independent television production companies. best of the world.

Additionally, Mattel will feature more than a dozen series and specials on networks or on streaming services this year. It has more than 20 TV projects in production and about 25 in development, Kreiz said.

“This opportunity is not taken to sell more toys,” he said. “When we launch a movie or a TV show, our mission is to create great content that people want to see and to build successful complementary verticals so we can attract the best talent, the best innovators and partners who want to create exceptional experiences.”

“We know that if this project is successful, good things will happen,” he continued. “We’re also going to sell more toys, but that wasn’t the original goal. We want to create great experiences and content that people want to see.”

Kreiz points to Lego and Disney’s Marvel as examples of companies that have followed similar paths to create quality content that replicates source brands and ignites consumer passion for products. In addition to creating critically acclaimed films and thriving at the box office, Disney and Lego have seen strong sales from these projects.

So far, Mattel’s projects are touting some sizable talent, like Tom Hanks for Major Matt Mason and Vin Diesel for Rock ‘Em Sock’ Em Robots.

“These are the partners who used to be fans [of Mattel’s brands]”he said.