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By: thewoof2, Christopher Gallon
Mar 02 2015 1:00pm
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Ladies and gentlemen, did you completely miss the recent seismic explosion from our “beloved” makers of Magic?  Previously I wrote about the future is bright but recent events/news has me putting on my proverbial shades from how bright it is looking!  Last we discussed this topic, Hasbro as a company was performing well with strong earnings and strategically the management team was talking about further investments in their Magic franchise brand.  Since that article 3 new pieces of information has come out that are significant to us, they are:

  • Hasbro Corporation Results
  • 2015 Investor Update at Toy Fair (2/13/2015 event)
  • WOTC Executive Update from Worth

All three of these I will go into more details on, but all are congruent in their underlying message that MTGO has maturated internally at Hasbro into a focus point for future investments to realize longer term growth.  I have been following Hasbro, WOTC and Magic Online since 2000 and never in the last 15 years or so have I seen a more unified message.  Often my only rational assumption to the issues we have had to endure since MTGO launch was due to a stark misalignment of investment and focus internally at Hasbro which externally manifests as incompetence (since I believe a true business case was always sound warranting such investment).  But now, and I am not sure how internally, but the Magic business case coupled with strong results has influenced Hasbro management to make an even more concerted investment.

Hasbro Corporation Results

Stock Results

Let’s start with the stock results; here is a chart of Hasbro over the 6 months:

Since 1/13/2015 Hasbro has gone gang busters, from the low of $51.42 to a high of $62.76 on2/25/2015 a jump of 18% in a little over a month.  Hasbro stock has never had as high of a stock price since it IPO’ed in 1978.

Why has Hasbro done so well?  Is it the entire stock market or the toy industry booming or is it Hasbro specifically outperformed the industry/market?  It is very clear it is the later; Hasbro is a stronger toy company than its peers.  A comparison stock chart to Hasbro’s largest competitor Mattel helps paint this picture.  You will see while Hasbro has risen significantly Mattel (in blue) has dropped.  Similarly adding in the Dow Jones index in the dotted green line you will see the overall Dow Jones indices has increased slightly but not at the rate of Hasbro in February 2015.

 

Earnings Report

On 2/9/2015 Hasbro reported strong results, recording $1.3 billion in fourth quarter revenue, a 1% increase from a year ago.  The only factor that hurt Hasbro was out of their control, foreign exchange rates hurt their revenue because of the strong US dollar they had a negative $75.4 million impact, if this impact was excluded then revenue would have increased a whopping 7%.  On the earnings conference call there were a few remarks attributed to Magic worth noting.

  • Over the past few years, we have invested in building our gaming capabilities across analog and digital platforms, including new gaming experiences across our portfolio and investments in the digital platform for MAGIC: THE GATHERING. We continue to build MAGIC: THE GATHERING as a compelling brand experience for our players and there remains significant growth opportunity globally.
  • SD&A increased 6%, slightly ahead of our revenue growth for the year.  As we discussed previously, we are making investments in our business including our digital capabilities with MAGIC: THE GATHERING and Backflip, where we have increased staff and had a full year of expense versus 2013. Additionally, equity compensation increased in 2014 versus 2013 as did depreciation associated with systems in which we have invested.

In short, Hasbro is doing great and their earnings call reinforced Magic as a flagship brand and a renewed investment in the digital space.

2015 Investor Update at Toy Fair (2/13/2015 event)

In New York City the Toy Industry Association (TIA) holds a Toy Fair for people “to the trade only”, therefore consumers (us) are not allowed.  However, Hasbro does record the session and makes it available to their investors and associated documents.  This event is attended by the senior Hasbro management team and they spoke on the company’s strategic direction.  In corporate speak, strategic direction is jargon for prolonged investment and focus for a company.  While I am admittedly reading between the lines, my impression is the update from the Toy Fair holds more weight than what has previously been reported in earning calls.  Here were my key takeaways from the Toy Fair.

Global Expansion

Hasbro is focused on the global marketplace.  Emerging markets represent 16% of the total 2014 revenue and continue to grow year over year.  They also see “disposable income” increasing in emerging markets specifically in China, Russia and Brazil.  The toy market cares about disposable income because this is money consumers have to buy luxury items.  If people in a country have only enough income to support their basic life needs then they will not be being toys.  But as the country people get more disposable income the more they will be looking to buy items like toys.  Put together, Hasbro sees increased revenue globally and projects emerging markets to have more disposable income making the share of money they can spend on toys larger.  For Magic this implies Hasbro will hope to expand into emerging markets for new consumers to the game.

Power of the Story

Hasbro does not want to just sell toys; they want to sell imaginative stories.  Having a story deepens customer engagement and makes consumers want to follow and participate in those stories.  Think of Marvel toys, you have all these superhero’s stories with film, print, action figures, etc… you can create and re-create stories ensuring a deeper customer bond.  I see this applying to Magic as well.  How many of you know the Magic story?  With the announcement of a Magic film I think those who answered no might become more familiar this year. 

Magic the Gathering

There was an entire segment devoted to Magic at the Toy Fair.  To start they showed key statistics on player growth in Magic, here is the slide detail.

 

Next they discussed Magic’s key strategic directions.  To start was the obligatory statement around having a robust product and entertainment plan.  Here is where they laid out the new card cadence:

Next they spoke about investing in the Premiere Play Events/e-Sports.  Magic tournaments have been wildly successful in 2014 and this will be a focus in 2015 as well.

Lastly, and most important to us was the strategic pillar around investing in digital platforms.

 

Here is where I got excited.  In the “Invest in Digital” section they started by explaining that Duels of the Planeswalker was their Entry level offering that will have quarterly releases.  But then they stated Magic Online as their significant long term growth platform and they will be “doubling down” on this platform.  They stated Magic Online has enormous potential to Hasbro, they estimated that in North American they have reached only 1/3 of the audience desired and in the world only 10% of the addressable audience.

Not only is Magic in general a core strategy for Hasbro, but Magic Online is as well.  And let me reiterate, this was not Worth talking to us this was the brass at Hasbro addressing the Toy store executives.  Speaking of Worth however brings us to the last piece of news and most direct.

WOTC Executive Update from Worth

On the mothership Worth posted an executive update on 2/23/2015.  Now I assume almost all of you read this article so no need to reiterate it in detail, but it completely reinforced my thoughts from the two events above.  Worth mentioned:

  1. Support for MTGO could not be higher from the top of Hasbro on down.
  2. They are building an organizational foundation to ensure MTGO meets modern expectations.
  3. They intend to DOUBLE the Magic headcount (resources) in 2015 from the 2014 number.
  4. Magic intends to focus on the customer experience and eliminate annoyance that degrade your experiences on a daily basis.  Read they are not looking to develop a Version 5, rather focus on making v4 meet our expectations.
  5. They ate some crow as well, stating they know we have endured some “frustrating and difficult times” but we deserve better and they are committed to delivering us the quality experiences we would expect.

In my mind Worth was memorializing to us the message from Hasbro management – Magic is a key strategic pillar and they intend to invest and focus on the game in 2015 considerably. 

Don’t Blow It WOTC Management

The stars have aligned, whether it was an influential internal Hasbro force, the amazing success of Hearthstone, fear of competitors like Hex, customer dissatisfaction or any other force as an outsider we will not know what spurred this change.  But I can say by these recent events there is a change at Hasbro not seen previously.

With management backing, this is where the pressure shifts to the WOTC management.  You have been given the investment to succeed, now can you management it effectively to success.  Pressure is on WOTC, don’t fail us!

Woof

3 Comments

how did that whole lawsuit by Joe Fiorini at Mon, 03/02/2015 - 20:25
Joe Fiorini's picture
5

how did that whole lawsuit with Hex turn out anyway? I watched a stream of that game, and it is nice looking, but it looked EXACTLY like MTG, specifically, Duels of the Planeswalkers. It was alarmingly close.

Trial date is set for April by thewoof2 at Mon, 03/02/2015 - 20:32
thewoof2's picture

Trial date is set for April 25, 2016 and will last for 12 days. You can see all the other dates in the below link with some additional comments.

http://www.reddit.com/r/hextcg/comments/2sfmdw/lawsuit_update_trial_date/

cool. thanks. Not cool as in by Joe Fiorini at Mon, 03/02/2015 - 21:32
Joe Fiorini's picture

cool. thanks. Not cool as in "I like to see people sued", cool as in thanksfor letting me know :)