5 Reasons Why Mattel Will Bounce Back
Mattel’s 2014 full year results were disappointing, with operating income down from $1.17 billion to $653.7m. Furthermore, the share price has taken a beating as would be expected based on such earnings.
The perhaps not unsurprising departure of the CEO, followed by the fairly surprising rehiring of the same CEO on a lucrative Consultancy contract, combined with a comparatively huge decline in key core brand Barbie year on year has lead to all kinds of crazy talk, negativity and doom mongering regarding one of the three global powerhouse toy companies that sit comfortably at the top of the toy industry.
The reality as I see it is far less worrying. Here’s 5 reasons why Mattel will bounce back stronger than ever.
1. Barbie was bound to be down in 2014, and is very likely to bounce back – due to the massive Frozen phenomenon at toy retail, all other girl targeted brands/products were bound to be impacted by $hundreds of millions heading in the direction of the Frozen franchise. When you look at any long term perennial brand in the toy business ove time, they all suffer from peaks and troughs dependent on how impactful the latest round of product development is and by the broader kids entertainment universe. Barbie is very likely to bounce back, at least to some degree as Frozen furore cools. And regardless of any bounce back, Barbie is still a huge global powerhouse of a toy brand, which is a huge asset and stability factor for Mattel.
2. The Mega Bloks Acquisition is yet to make full impact – while it’s over a year ago (at the time of writing) that Mattel’s purchase of Mega Brands/Mega Bloks was announced, that is no time at all in terms of toy product development and selling cycles. Mattel has a fantastic track record of brand management/brand extension, as well as a close to un-rivalled global distribution capability, which appears likely to grow the Mega Bloks business over time.
3. Toy company strategies are driven by a cyclical process – strategies only tend to have so much growth in them before they need to be rethought and refreshed, especially when the company in questions is already huge, with leading brands in most product categories of any size. New strategy often needs new management at the helm, we don’t have to look much further than the success of Mattel’s rivals Hasbro to see the impact a new CEO can make in terms of shifting strategy – Brian Goldner, Hasbro’s CEO shifted Hasbro closer to Hollywood and the kids entertainment world, leading to a greatly improved share price. For those who have been around the block a few times in the toy business it seems clear that any question mark over Mattel’s strategy can only be a short term question mark before the mighty ship sets sail in the right direction again.
4. Monster High proves Mattel can launch successful new brands – it’s my opinion that Mattel have received nowhere near the plaudits deserved for this massive new global brand launch, a paradigm smashing new brand introduction which for once does not rely on blockbuster movies or traditional TV distribution. For sure more new brand launches fail than hit, but when you establish a new perennial hit brand in a category where you already have the clear leader you will reap the benefits for many selling cycles to come.
5. Mattel generates huge amounts of cash & new acquisitions are likely – with c. $1billion cash in hand Mattel is well placed to make further acquisitions. In recent years Mattel have made numerous major acquisitions including HIT Entertainment and Mega Bloks. A historical view of the toy industry shows that the bigger companies have grown exponentially via acquisition, if I were Mattel’s CEO (we can all dream!) I would certainly be ready to open the check book and splash out again, perhaps after letting Mega Bloks bed down for 2015. I would not be surprised if another major (i.e. $hundreds of millions) acquisition materialises in 2016.
Disclosure – when Mattel’s shares dropped recently I bought a small amount of shares based on my feeling that the company is very likely to bounce back to bigger and better things, so readers of this article should be aware I may have a vested interest in Mattel.
by Steve Reece, CEO of Kids Brand Insight www.kidsbrandinsight.com, a leading Consultancy to toy, game and kids entertainment companies around the world, which helps companies find the right toy & game factories, consumer research test their products with kids and parents and secure export distribution/market entry around the world.