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Hasbro vs. Mattel: Who's Better Positioned for Growth?

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On Oct. 21, toy company Hasbro (NASDAQ: HAS  ) released its latest quarterly earnings. Revenue increased 2% versus 6% for rival Mattel (NASDAQ: MAT  ) . Looking at Hasbro's latest earnings from the strategic standpoint of strengths, weaknesses, opportunities, and threats represents a good way to understand Hasbro's current standing.

Magic: The Gathering
represented Hasbro's pride and joy this past quarter. In the earnings call, Hasbro CEO Brian Goldner said that revenue from the game increased 30% year over year. Hasbro executives repeatedly mentioned incremental investment in the brand, including "analog" and "digital" experiences.  Hasbro said that one of Magic's strengths lies in its release driven revenue growth, relying less on holiday seasonal demand.  

Girls' segments shined for both Hasbro and Mattel. Hasbro's girl's revenue increased 29 % in its most recent quarter due to the success of My Little Pony, Furby, and Nerf Rebelle. My Little Pony recently experienced a boost from the movie release of My Little Pony: Equestria Girls. Rival Mattel also experienced a surge in its newer girl's products. Its other girl's brands comprised of Monster High Worldwide which increased revenue 28% and its American Girls Brands line, which includes Saige, 2013 Girl of the Year and My American Girl, increasing revenue 20%. 

Hasbro's boy's revenue declined 17%. Transformers propped up this segment which would have fared worse without the toy line.  Transformers Prime and Transformers Rescue Bots helped fill a content void until the next Transformers movie.

Star Wars contributed to multiple categories including boys. According to Hasbro's latest earnings call, the Star Wars "Black Series" which caters to collectors sells very well in the marketplace. Angry Birds Star Wars II helped contribute to the revenue increase in Hasbro's games segment .

Hasbro saw its sales in the underpenetrated international markets increase 11% in the most recent quarter. Surprisingly, Europe saw an increase of 9% in revenues.  Latin America and Asia-Pacific increased revenues 14% and 17% respectively.  Mattel saw similar growth patterns internationally with Europe, Latin America, and Asia Pacific showing revenue gains of 13%, 4%, and 8% respectively.  A recovering European economy and an expanding middle class in places like Russia, China, and Brazil serve as explanation for these numbers.

Marvel related products "faced difficult comparison" most likely due to the lack of major blockbusters this past quarter. This helped drive the 17% decline seen in the boys segment. Things will most likely pick up on this front in the 4th quarter with the release of the new Thor movie and the holiday season. 

Hasbro's preschool segment revenue declined 2%, making this the company's second biggest weakness during the past quarter.  Interestingly, Mattel's preschool line, Fisher-Price, remained largely even compared to growth in its other segments, reflecting a weakness for it as well. 

In the developed world multinational companies, including Mattel and Hasbro, face market saturation where the collective consumer already owns many of the products needed and approaches new purchases with caution due to a thinner pocketbook. Hasbro experienced a 5% revenue decline in the U.S. and Canada versus an 11% increase in the international arena.  Mattel saw a 3% revenue increase in its North American territory versus 9% internationally. 

Hasbro purchased Backflip Studios in order to gain a better foothold in the digital gaming industry. Backflip just started contributing to Hasbro's revenue this past quarter. Hasbro realizes that the future of the brands surrounding its toys lies in the successful integration of digital gaming into future products. Owning Backflip will enable Hasbro to capitalize on this shift. 

Hasbro also wants to employ an omni-media strategy for its products that made toys like Transformers and G.I. Joe so successful. Across the board content for movies, television shows, comic books, and novels will only serve to boost toy sales. Hasbro stands to benefit from its recent  licensing deal with Walt Disney (NYSE: DIS  ) . A slew of new Marvel and Lucasfilm related movies and television series will hit the screens over the next few months, including a new Captain America movie and a Star Wars Rebels television series. The year 2015 will bring the release of the much anticipated Star Wars Episode VII and a new Avengers movie. 

Hasbro's brand outsourcing of some of its underperforming brands such as Tonka , Lincoln Logs, and Tinkertoys serves as a bright spot in the Preschool segment. This tactic will lower revenue but increase margins on the licensing fees Hasbro will receive.

The biggest concern for Hasbro is brand fatigue . What if the public loses interest in all of these iconic brands and the new upcoming Star Wars, Transformers, and Avengers movies don't serve the purpose of bringing people back in droves? Even George Lucas and Steven Spielberg observed that this could happen. If it does then the stock prices of Hasbro, Mattel, and Disney will collapse right along with it.

Foolish takeaway
Hasbro demonstrates strategic prowess by focusing on what works and adapting to new circumstances. As long as it can do this, Hasbro belongs in your portfolio. Mattel needs to employ more brands on multiple platforms like Hasbro.

Look beyond the immediate industry for clues on future trends
Toymakers depend upon the TV and film content to drive growth in their businesses. That's why the future of television is so important for these investors and it begins now... with an all-out $2.2 trillion media war that pits cable companies like Cox, Comcast, and Time Warner against technology giants like Apple, Google, and Netflix. The Motley Fool's shocking video presentation reveals the secret Steve Jobs took to his grave, and explains why the only real winners are these three lesser-known power players that film your favorite shows. Click here to watch today!

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Related Tickers

9/28/2016 4:00 PM
HAS $79.61 Down -0.26 -0.33%
Hasbro CAPS Rating: ****
MAT $31.05 Down -0.31 -0.99%
Mattel CAPS Rating: ****