Hasbro, Inc. (HAS), Mattel, Inc. (MAT): Should You Invest in Toys?

Hasbro, Inc. (NASDAQ:HAS)

Hasbro, Inc. (NASDAQ:HAS) seems to be making all the right moves in order to position itself for future growth. The toy industry is changing and there is a greater emphasis on digital. So let’s take a look at the deals Hasbro, Inc. (NASDAQ:HAS) has made and whether it is likely to present a good investment opportunity.

Strategic aggression

Hasbro, Inc. (NASDAQ:HAS) has made two key deals with Disney. One is a two-year pact where Hasbro will pay $85 million to Disney for the rights to design and sell Marvel character toys (Disney bought Marvel in 2009).

Perhaps even bigger news is that Hasbro, Inc. (NASDAQ:HAS) paid Disney $225 million for the rights to design and sell Star Wars toys. The first installment in the next Star Wars trilogy is set to be released in 2015, and the Hasbro/Disney deal will conclude in 2020.

You may have known about the next Star Wars trilogy, but you might not have known that an Angry Birds movie will be released on July 1, 2016. Hasbro, Inc. (NASDAQ:HAS) made another strategic move, forming a deal with Rovio Entertainment for the rights to design and sell Angry Birds toys.

Hasbro, Inc. (NASDAQ:HAS) has also been aggressively increasing its mobile gaming exposure. It now owns a 70% stake in Backflip Studios, which has seen more than 300 million game downloads. Popular Backflip Studios games include DragonVale, NinJump, Paper Toss, Ragdoll Blaster, and Army of Darkness Defense.

Furthermore, Hasbro has a four-year deal with Electronic Arts, in which Electronic Arts will develop mobile versions of Hasbro’s most popular games, including Monopoly, Life, Battleship, Scrabble, and Risk.

And Hasbro has partnered with Zynga. These moves won’t only lead to increased brand exposure domestically, but internationally as well.

Hasbro saw a small revenue increase in 2012 from 2011. However, the company is making all the right moves to boost its top-line growth going forward. Hasbro’s net margin of 8.01% is solid, but its debt-to-equity ratio of 1.09 is mediocre at best. Hasbro currently yields 3.40% and the dividend appears to be safe for now. The biggest threat to the company isn’t competition, but the macroeconomic environment.

Related options

Mattel, Inc. (NASDAQ:MAT) is a larger company, with a market cap of $14.85 billion, versus a market cap of around $6 billion for Hasbro. Mattel has seen consistent revenue and earnings increases, its net margin is a solid 12.0%, its debt-to-equity ratio is strong at 0.58, and it also yields 3.40%.

Mattel, Inc. (NASDAQ:MAT)’s Barbie brand has been in decline, but American Girl has picked up the slack. Mattel also owns other well-known brands, such as Hot Wheels and Fisher-Price. Mattel, Inc. (NASDAQ:MAT)’s strong brand exposure has led it to being a market share leader.

In addition, Mattel, Inc. (NASDAQ:MAT) has been able to grow its dividend and it recently increased its share buyback program by $500 million. However, while international sales increased 4% in the second quarter, domestic sales declined 4%. The domestic market is mature, which is why Hasbro’s moves into digital are highly strategic.

Mattel, Inc. (NASDAQ:MAT) is likely to remain the market leader, but Hasbro has the potential to steal share over the next several years.