As D&D and Barbie sq. off this 12 months, Mattel appears just like the winner, analyst says

“Expectations for Mattel’s 4Q have reset lower following Hasbro’s preannouncement,” BofA analysts Jason Haas, Elizabeth Suzuki and Sarah Park mentioned in a analysis observe on Tuesday. “We prefer Mattel’s shares over Hasbro’s.”

They mentioned that Hasbro’s inventory nonetheless wasn’t “de-risked” after the corporate introduced the preliminary fourth-quarter outcomes. Sales at Hasbro’s section for digital gaming and Wizards of the Coast — the Hasbro subsidiary that oversees D&D and Magic — nonetheless jumped 22% to $339 million. But that section, which made up a fifth of Hasbro’s gross sales in 2021, drew different issues from the analysts, who mentioned, “Hasbro continues to destroy customer goodwill by trying to over-monetize” these role-playing video games.

“We remain especially cautious on Hasbro’s Wizards segment given its over-monetization of Magic,” the analysts mentioned. “Wizards recently tried a similar tactic with D&D — proposing changes to its licensing agreement which led to substantial pushback from the community including calls to boycott the D&D movie. The proposed changes have since been dropped.”

In November, BofA analysts mentioned Hasbro had printed too many “Magic: The Gathering” playing cards in an effort to make the most of a surge in gaming curiosity in the course of the peak of the pandemic. But the flood of recent playing cards drove costs down for collectors, and left recreation outlets annoyed and gamers unable to maintain up, and broken the sport’s repute total, the analysts mentioned.

Hasbro over current weeks additionally bumped into additional resistance after Wizards proposed modifications to the roughly two-decade-old licensing regime that allowed unbiased creators to make role-playing video games that used the infrastructure of present video games.

Wizards had proposed new guidelines that might require many recreation makers to share income and challenge knowledge, in addition to a 25% royalty fee on gross sales over $750,000. Those modifications, critics mentioned, would even have given Wizards extra management over how they used merchandise made by third-party creators. After a wave of protest from recreation builders and others, Wizards has backed off for now.

“This is a victory for open gaming, forever,” mentioned an announcement on the web site for #OpenDND, a marketing campaign that amassed practically 80,000 signatures opposing the modifications. “We can continue making and playing games without corporate oversight or oppressive restrictions, as we have for two decades.”

The BofA analysts on Tuesday additionally famous that Hasbro’s TV and movie unit, eOne, was nonetheless up on the market. And they famous that the toy maker had misplaced its Disney Princess license to Mattel, permitting Mattel to start making toys modeled after Disney’s princess characters.

Hasbro, the analysts mentioned, nonetheless stood to profit from a robust film slate this 12 months, which incorporates the D&D film, together with motion pictures from the “Spider-Man,” “Transformers” and “Indiana Jones” franchises. But Mattel, they mentioned, had higher momentum total for 2023.

“Its brands, including Barbie and Hot Wheels, have significantly more momentum entering 2023 than Hasbro’s,” the BofA analysts mentioned. “This year’s results should benefit from the Disney princess license, the relaunch of Monster High, and a supportive film slate including The Little Mermaid, Barbie and Trolls.”

The analysts additionally famous that Mattel owns its manufacturing capability, doubtlessly serving to margins extra as prices for freight fall. Hasbro, they mentioned, used third events to make merchandise.

Shares of Hasbro had been down 2.6% on Tuesday. Mattel inventory dipped 0.9%.

Over the previous 12 months, Hasbro inventory has fallen roughly 37%, with Mattel down 5%. By comparability, the S&P 500 Index
SPX,
+1.03%
is down round 8% over that point.