Last century is so now. In lockdown, kids want classic toys and play things. Climbing on swing sets, clicking puzzles together and bonding over board games have surged in popularity. Hasbro, the US toymaker behind Play-Doh and Nerf gun, on Monday reported a 21 per cent rise in fourth-quarter revenue to $1.7bn.
Even so, strong demand for Star Wars and The Mandalorian-related toys also helped to drive a 10 per cent increase in net earnings for the period. Hasbro’s smaller rival, Barbie maker Mattel, should deliver similarly cheery results when it reports on Tuesday.
Both toy companies’ shares prices have more than doubled from March lows. But investors betting on more will be left disappointed.
There are good reasons why Hasbro still trades about a fifth lower than its 2019 peak. For starters, 2020 was hardly a banner year. Retail store closures and supply chain disruptions in the early days of the pandemic curtailed the windfall from online demand.
The US toy industry also sources more than 80 per cent of its products from China. Even after supply bottlenecks were resolved, Hasbro had to contend with higher airfreight costs to get products into the US for the holidays. As a result, full-year revenue and net profit at Hasbro are down 8 per cent and 36 per cent respectively.
At 21 times forward earnings Hasbro shares trade in line with the historic average. Then again, its forecast operating profit growth, up by half in three years, looks much faster than rival Mattel’s. But to justify Hasbro’s valuation, investors will need proof that the company can keep sales momentum from the fourth quarter going. This is far from guaranteed. Parents’ desire to cut down on their children’s screen time during the pandemic is fuelling demand for classic board games. But expect this to reverse once in-person school learning begins again.
Investors should stop playing around. Better to snap up shares in Japan’s Nintendo (19 times forward earnings) or Roblox’s upcoming IPO instead.