At the start of this year, I’d never heard about Mattel (NASDAQ:MAT). If someone had asked me which toy company owns the brands such as Barbie and Hot Wheels, I wouldn’t have been able to tell them. Yet thanks to the success of the Barbie blockbuster movie just released, Mattel stock is up 18% over the past month. Could this be the spark of a huge demand surge for the toy manufacturer?
Getting the background
Mattel is the second largest toy company by revenue in the world, only beyond Lego Group. It has been operating for many decades and can brag about a large variety of household names in the portfolio. The business also controls the full end-to-end process, from production through to selling.
The pandemic was good for business, with 2021 being a standout year for its financials. This was always going to make 2022 difficult. In fact, not only was the bar already high, but a slowdown in consumer demand over the past two quarters makes the comparisons even more ugly. For example, Q1 2023 net sales fell by 22% versus the same quarter last year.
Another problem has been inflation. The costs of production (be it labour or raw materials) have risen significantly. This has hampered profitability, with the adjusted operating loss for last quarter being $87m. These factors mean that the share price is flat over the past year.
Short-term jump noted
Despite the struggle over the past year, we’ve seen a sharp jump recently thanks to the Barbie brand.
More specifically, the movie is the first film to be co-produced by Mattel Films, part of the broader entertainment division of the company. Interestingly, there are 17 films that the company has also announced around other brand characters, such as Barney.
Clearly, this is a strategy push, and one that I think could be very financially profitable for the firm. The details about the revenue split on the Barbie film with other producers isn’t public. Yet aside from the cut from the movie, the brand stands to make significant profit from related toys.
We don’t have data out on the impact thus far, but would expect this to be addressed in a summer trading update.
The rally could continue
If the film and associated product sales do well, I think this could be the start of a long-term rally for the stock. And as mentioned, it’s a model that can be replicated with other toy brands in the portfolio.
Granted, there are risks around consumer tastes changing and inflation will remain an issue for some time. Yet could the revenue benefit from the films outweigh this? I think so.
At this stage a lot of my thoughts are very subjective. In coming months the picture will become a lot clearer, yet there’s the potential that the stock might have jumped further by then. From that angle, I’m considering taking a small position in the company in the near future.
