Toymaker Mattel (MAT) has been a pretty terrible stock for the last 10 years. It currently sits around $21, less than half of its 10-year high just shy of $48, which was set back in late 2013. But the “Barbenheimer” phenomenon makes now a great time to re-assess the stock, says Berna Barshay, editor of Hedge Fund Girl.
Mattel, like many toymakers, got a big boost during the pandemic. With schools, camps, and extracurricular activities shut down for much of 2020 and the early part of 2021, parents armed with stimulus checks and desperate to entertain their children at home splurged on toys. After suffering six straight years of negative sales growth from 2014 to 2019, Mattel eked out a modest topline gain of 2% in 2020 and followed it up with a banner year of 19% growth in 2021.
Mattel had suffered many company-specific headwinds to growth in the years leading up to the pandemic…among them, the loss of the Disney Princess doll license to competitor Hasbro (HAS), which Mattel later spent a pretty penny to get back.
Over at Barbie, there was inconsistent and sometimes even falling demand. But in 2018, the Mattel board brought in a new CEO, Ynon Kreiz, an executive with a background in entertainment, not toys. Kreiz had been the CEO of Maker Studios at the time of its 2014 acquisition by Disney. Prior to that, he had led Fox Kids Europe.
Kreiz came onboard with a strategy that very much mirrored Hasbro’s entertainment IP strategy, where movies and TV shows were made to bolster the popularity and cultural relevance of its toy franchises, supporting continued consumer relevance and sales growth.
In 2019, Kreiz announced the first project in Mattel’s new entertainment IP strategy would be a Barbie movie, starring Margot Robbie, which would be produced in partnership with Warner Bros Discovery (WBD).
It’s been five years since Kreiz took the reins at Mattel and four years that investors have been hearing about the big splash Mattel believed Barbie would make at movie theaters. Now the moment is finally here…with Barbie’s opening weekend just having taken place.
And it’s a phenomenon.
If you’ve been anywhere on the internet in the last two weeks, you’ve probably heard of Barbenheimer…the unlikely double feature of Barbie and this past weekend’s other big film release, Oppenheimer, the biopic about the inventor of the atomic bomb, the latest creation from revered writer-director Christopher Nolan.
It’s hard to know if Barbenheimer was planted by one astute professional viral marketer, or if this is truly an organic eruption of the zeitgeist. What is certain is that the traditional marketing execution around this Barbie film has been flawless.
That said, MAT shares are trading at around 10x earnings before interest, taxes, depreciation, and amortization (EBITDA) and at a price to earnings ratio (P/E) of 18.5. They aren’t super expensive, given the strong brands. But they aren’t cheap either, especially when you think about how revenues in 2023 will be 15-20% lower at Mattel than they were in 2013, thanks to all those company-specific and secular issues discussed above.
There may be some small money to be made on earnings revisions upward should the Barbie bump last four to six quarters as opposed to just one to two. But I don’t see big earnings growth or a re-rating of this stock to trade at higher multiples happening unless growth meaningfully – and sustainably – picks up.
Bottom line? I’m taking a pass on buying MAT shares…but I will enthusiastically buy a ticket to Barbie.