The Ratings Game: As D&D and Barbie square off this year, Mattel looks 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 said in a research note on Tuesday. “We prefer Mattel’s shares over Hasbro’s.”

They said that Hasbro’s stock still wasn’t “de-risked” after the company announced the preliminary fourth-quarter results. Sales at Hasbro’s segment for digital gaming and Wizards of the Coast — the Hasbro subsidiary that oversees D&D and Magic — still jumped 22% to $339 million. But that segment, which made up a fifth of Hasbro’s sales in 2021, drew other concerns from the analysts, who said, “Hasbro continues to destroy customer goodwill by trying to over-monetize” those role-playing games.

“We remain especially cautious on Hasbro’s Wizards segment given its over-monetization of Magic,” the analysts said. “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 said Hasbro had printed too many “Magic: The Gathering” cards in an effort to take advantage of a surge in gaming interest during the height of the pandemic. But the flood of new cards drove prices down for collectors, and left game shops frustrated and players unable to keep up, and damaged the game’s reputation overall, the analysts said.

Hasbro over recent weeks also ran into further resistance after Wizards proposed changes to the roughly two-decade-old licensing regime that allowed independent creators to make role-playing games that used the infrastructure of existing games.

Wizards had proposed new rules that would require many game makers to share revenue and project data, as well as a 25% royalty payment on sales over $750,000. Those changes, critics said, would also have given Wizards more control over how they used products made by third-party creators. After a wave of protest from game developers and others, Wizards has backed off for now.

“This is a victory for open gaming, forever,” said a statement on the website for #OpenDND, a campaign that amassed nearly 80,000 signatures opposing the changes. “We can continue making and playing games without corporate oversight or oppressive restrictions, as we have for two decades.”

The BofA analysts on Tuesday also noted that Hasbro’s TV and film unit, eOne, was still up for sale. And they noted that the toy maker had lost its Disney Princess license to Mattel, allowing Mattel to begin making toys modeled after Disney’s princess characters.

Hasbro, the analysts said, still stood to benefit from a strong movie slate this year, which includes the D&D movie, along with movies from the “Spider-Man,” “Transformers” and “Indiana Jones” franchises. But Mattel, they said, had better momentum overall for 2023.

“Its brands, including Barbie and Hot Wheels, have significantly more momentum entering 2023 than Hasbro’s,” the BofA analysts said. “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 also noted that Mattel owns its manufacturing capacity, potentially helping margins more as costs for freight fall. Hasbro, they said, used third parties to make products.

Shares of Hasbro were down 2.6% on Tuesday. Mattel stock dipped 0.9%.

Over the past 12 months, Hasbro stock has fallen roughly 37%, with Mattel down 5%. By comparison, the S&P 500 Index
SPX,
+1.29%
is down around 8% over that time.