Mattel: Barbie's Future in the Digital Age
Jane is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The zen of investing holds that everything changes. Admittedly, Mattel’s (NASDAQ: MAT) 1Q net income of $7.8 million, versus $16.6 million the previous year, was disappointing. Last year in the toy industry, retail sales, according to the NPD Group, fell 2.1% to $21.2 billion. Big box retailers ranging from Toys R Us to Wal-Mart are keeping inventory lean, therefore buying and stocking less. Also, price increases perhaps as high as 20% are expected since production workers in China’s Guangdong province, where many toys are made, are getting hefty pay increases.
However, Mattel stock is back on its way up, now at around 31.49, with a 52-week range of 22.70 to 34.62. And, this toy company is changing. And as I can see it, those shifts are in the right directions. Remember when all doom and gloom had surrounded LEGO back in 2004? It innovated its way back to be a leader. The most important of those paths Mattel is taking has been marrying its iconic brands like Barbie and Hot Wheels with tablets. That new line of products, featured at the recent International Toy Fair in Manhattan, is called “Apptivity.” They will be in stores this summer, retailing between $9.99 and $19.99. That sets the tone for the holiday shopping season. Children will delight to spot Barbie’s jewelry in the game. Mattel will also put on the market Apptivity plastic figures for Angry Birds, Cut the Rope, and Fruit Ninja. This mash-up of real and virtual through tablets and smartphones is what is transforming the toy industry. One app could become the must-have purchase. Happy net earnings are here again.
Not only are sales likely to be on a sustained upward trajectory through tablets and smartphones. Apps also have higher margins. In addition, tablets and smartphones provide the platforms for brands like Barbie to never have to be become “mature” ever again. They can be continuously repurposed into the latest virtual experience. There, for example, could be Barbie launching a startup in Silicon Valley to develop green technology for reducing packaging for cosmetics and fragrances. With all these benefits coming from fusing high tech and play, it's no surprise, Apple is increasingly being categorized as a “toy company.” It might have found its whimsical way there when the late Steve Jobs was sitting on the board of Disney (NYSE: DIS).
Of course, Mattel has plenty of company in the world of apps. Last year, Disney Company launched its Appmates series. The iPad turns into an interactive playing field – through a free app. The first toys out were Pixar’s Cars. These real figures from the popular film, retailing at 2 for $20, equip the player to interact with the characters from the movie. This can be solitary activity or be competitive.
Hasbro (NASDAQ: HAS) has upgraded its reality laser tag blasters for Apple products iPhone and iPod Touch. In essence this is like playing paint ball but hitting targets will be recorded digitally, not on clothes. The apps are free and the system will be out there this August. Later there will be Android versions. According to Sterne Agee analyst Margaret Whitfield, quoted in Reuters, Hasbro’s apps, though, haven’t been performing as well as Mattel’s.
Some analysts wonder if ZYNGA, specializing in adult games, will enter children’s toys. Lesser known but a growing threat could be LeapFrog Enterprises (NYSE: LF). Started in 1995, it has developed a reputation for innovation. Like Mattel’s Fisher Price, it has a solid reputation for educational toys and won an award at this year’s Toy of the Year gala.
In addition to competition, another headwind, as it had been with television when it was a new medium, could be the questions about how these hybrid toys impact child development. Like watching television, working with tablets and smartphones is totally engrossing for children. It might be thought of, just as with television, as the ultimate babysitter. Already there is commentary on talk radio how some pre-school children, so accustomed to a touch screen, don’t know how to turn pages in a real life book. They keep sliding their hand across. Will time with these gadgets come to be limited?
This coming holiday season, which the toy industry has already prepared for, will tell investors plenty about what further changes Mattel and other toy companies have to make. My hunch is that they will all have to configure play time to be more educational for children. Or, at least, position and package the toys as having that mission. Mattel's Fisher Price, LeapFrog, and Lego already lead in that educational space.
Motley Fool newsletter services recommend Walt Disney, Hasbro, LeapFrog Enterprises and Mattel. The Motley Fool owns shares of Walt Disney and Mattel. janegenova has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.