Recently, Chris Cocks took the helm as Hasbro's (NASDAQ:HAS) CEO after its former head tragically died in late 2021. Cocks will have his work cut out for him: The stock for the toy and entertainment company has been essentially flat over the past five years. But his background suggests a possible move toward a more lucrative direction.
Who is Hasbro's new CEO?
Hasbro is arguably most known for its toys and legacy tabletop games like Clue, Connect Four, and Monopoly. However, its new-age gaming division, Wizards of the Coast, best known for publishing fantasy and science fiction trading cards and tabletop games like Magic: The Gathering and Dungeons and Dragons, has become its growth driver. Cocks has been President and COO of Wizards of the Coast for the past five years, helping revenue from that division double to more than $1 billion, and played an integral part in building out its lucrative digital gaming division. For comparison, Hasbro's total revenue only grew about 28% in the same time period, from $5.02 billion in 2016 to $6.42 billion in 2021.
IMAGE SOURCE: GETTY IMAGES.
Under Cook's watch, Wizards of the Coast's began to transform its tentpole franchises Magic: The Gathering and Dungeons and Dragons into video games. While Hasbro doesn't break out exact figures within Wizards of the Coast, it highlighted that revenue for its digital gaming segment was up 36% year over year. Perhaps more importantly, those games appear to be gaining traction; management recently stated that its latest video game release Magic: The Gathering Arena has created a sustained boost of 50% in its monthly active users for mobile.
Cocks will most likely try to unlock Hasbro's 99 years of intellectual property history, as the company's digital games segment has only scratched the surface with its releases to date. Among other properties, Hasbro may look to tap into its popular G.I. Joe and Transformers franchises; a big-budget digital game based on the former is currently in development. Other investors are noticing Wizards of the Coast's potential, too, as an activist investor recently called on Hasbro to spinoff its gaming segment as a way to unlock value. While Hasbro has acknowledged that call, the company has no plans to spinoff its fastest-growing segment.
A recent acquisition changes the game
In addition to its digital gaming segment, Hasbro is expanding its entertainment segment through its recent acquisition of EntertainmentOne. The company has begun transitioning from licensing its IP for television and movies to in-house production. And similar to its gaming segment, Hasbro is leveraging its IP to grow its entertainment business -- its 2021 films and TV shows included Clifford: the Big Red Dog, My Little Pony, and Peppa Pig. As a result, the company's entertainment segment produced record revenue of nearly $1 billion in 2021, representing 24% growth from 2020, and 276% growth from 2016.
Even as Hasbro invests more in producing television and movies -- a key component in the strategy that management calls "Brand Blueprint," which it believes will lead to better toy sales -- entertainment can be more cyclical than other segments. While the studio will continue to produce and release films and television shows in 2022, the real potential may not come until 2023, with the release of big-budget blockbusters like Transformers: Rise of the Beasts and Dungeons and Dragons.
Sorry! The turnaround may take a while
As Hasbro's gaming and entertainment divisions take time to develop, the company faces challenges to its legacy consumer product segment, which accounted for $3.98 billion in revenue for 2021, or roughly 62% of its total revenue. Most notably, Hasbro will lose its license for Disney princess toys to rival Mattel in 2023. On its most recent earnings call, management said those toys attributed an average of $250 million in revenue each year, or roughly 4% of its total revenue. Still, Hasbro recently expanded its licensing relationship with Disney for Star Wars and added Indiana Jones ahead of the fifth film's release in 2023. Additionally, management continues to develop consumer partnerships with Fortnite and Roblox, suggesting that Hasbro's toy segment will continue to live or die by its licensing deals.
Moreover, like many consumer goods companies, Hasbro is dealing with constrained supply chains. The company has navigated those challenges better than others by utilizing alternate ports in China and the U.S. and expanding its shipping capacity with air freight. The extra costs showed up in Hasbro's fourth-quarter earnings report: Operating profit for its consumer products only rose 2.9% year over year, while revenue grew 9.4%. Management stated it would increase prices in the second quarter of this year to combat the continued supply chain issues.
Is it time to buy Hasbro stock?
Hasbro simply hasn't rewarded its shareholders over the past five years. However, the company's new plan to develop its digital games, movies, and television shows from its historic catalog of IP could change that. Look to see if the company announces more digital games and entertainment projects this year, and monitor revenue growth from existing ones. If Hasbro's new leadership can execute this change in strategy, then the stock may finally get out of jail and pass "Go."
