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How Disney+ Could Boost Toy Sales at Hasbro

By John Ballard – Apr 19, 2020 at 11:23AM

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Home entertainment is more attractive than ever, thanks to streaming services, and that is driving strong sales of toys based on big franchises like Star Wars.

Hasbro (HAS -2.36%) entered the COVID-19 crisis with good business momentum. In the fourth quarter of last year, the partner brands segment, which includes sales of licensed toys from Walt Disney (DIS -2.31%), exploded with 50% year-over-year growth. That tremendous performance was driven by a robust content slate from the House of Mouse, including the release of Frozen 2Star Wars: The Rise of Skywalker, and The Mandalorian on the new streaming service, Disney+. These new releases drove strong engagement with licensed entertainment properties for Hasbro such as Star Wars lightsabers and the Arendelle Castle from Frozen

While Disney is currently in a mess with its theme parks closed, Disney+ is growing with 50 million subscribers as of March. That's nearly double what Disney reported in early February. During Hasbro's fourth-quarter conference call in February, management discussed how the popularity of Disney's content and the growth of Disney+ could benefit the toy maker in the long run.

A boy laying on the floor with a tablet computer with toy cars lying at his side.

Image source: Getty Images.

Strong demand for big entertainment properties

One of the big sellers recently has been Baby Yoda toys. Hasbro's $60 plush toy sold out quickly after taking pre-orders in February. 

Some were concerned that factory closures in China might disrupt production for the toys, which are expected to hit store shelves this year. But Hasbro CEO Brian Goldner told CNBC on March 23 that its factories were up and running in China, which is good news. 

It's no surprise that Hasbro is salivating for Disney to churn out more content and keep its own sales momentum going. During the fourth-quarter call in February, Goldner said, "We're incredibly excited that The Mandalorian season two will come to Disney+ this fall." Investors should be pleased to know that filming for season two is already finished, so the October release date should still be on schedule, despite some production delays in Hollywood over COVID-19. 

The 2020 holiday season will be important for Hasbro. There were no Baby Yoda toys last year, because Disney wanted to keep the character top secret ahead of the Disney+ launch. As a result, the fourth quarter of 2020 will be a big sales window for products related to The Mandalorian and Star Wars toys overall. 

Home entertainment is back

While it's impossible to know how fast consumer spending will recover when the economy reopens, the treasure trove of content coming to Disney+ over the next several years sets Hasbro up for long-term growth, and that's the most important thing for investors to focus on as we navigate 2020.

Goldner actually described the first quarter as "quite good" on CNBC last month as stay-at-home parents are buying toys to keep their out-of-school kids entertained.

Longer term, Goldner sees the growth of Disney+ bringing a return of the heyday of the lucrative home entertainment window to toy sales. Here's what he said during the fourth-quarter call: 

If I step back historically a bit, back in the days where DVDs were the way in which people saw home entertainment, we saw incredible impact from the launch of the DVDs. As it came into the home, it engaged the family, engaged kids who want to view content over and over again.

He added, "We're really seeing the return of that kind of heyday of home entertainment enjoyment, now through streaming services and through electronic sell-through windows, as well as for the DVD business."

What's more, sales of toys tied to entertainment properties from Disney and other content providers generate higher profit margins than Hasbro's other brands. Plus, Hasbro is starting to make greater use of social media to market its brands, which is saving the company some money on advertising expense. 

Based on Goldner's statement about the first quarter being quite good, it seems Hasbro may continue to do fine in the short term. But no matter how the next few quarters shape up, the content coming to Disney+ is allowing kids to remain engaged with these popular brands for longer stretches of time, and that bodes well for the long-term growth prospects of this top consumer-discretionary company.

John Ballard owns shares of Walt Disney. The Motley Fool owns shares of and recommends Hasbro and Walt Disney and recommends the following options: long January 2021 $60 calls on Walt Disney. The Motley Fool has a disclosure policy.

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