Toy And Games Companies In The Spotlight

Includes: HAS, JAKK, MAT, SMDM
by: Dutch Trader

I have been looking for toy and game companies with nice dividend yields or toy and game companies operating in a niche market. During my research I found three companies with a yield above 3% and one company that finds itself in a turnaround situation but could become a future winner.

Online shopping has been very good

Through the first 30 days of the holiday season online sales have surpassed $20 billion with several days last week above the $1 billion mark.

For the holiday season-to-date, $20.4 billion has been spent online, marking a 15% increase versus the corresponding days last year, according to the online measurement firm comScore. Last week saw three individual days eclipse $1 billion in spending, led by Cyber Monday, which became the heaviest online spending day on record at $1.46 billion. Tuesday, November 27 reached $1.26 billion, while Wednesday, November 28 reached $1.11 billion. Monday and Tuesday of this past week currently rank as the two heaviest online spending days in history, with the Tuesday total slightly outpacing that of Cyber Monday 2011.

"Cyber Monday kicked off Cyber Week with a record spending total of $1.46 billion, but the 'sugar high' appears to be somewhat short-lived," said comScore chairman Gian Fulgoni. "While we still saw three billion dollar days this week, growth rates dampened following the peak demand of the Thanksgiving-to-Cyber Monday promotional period. This is a similar pattern to what we observed last year. In addition, unseasonably warm weather throughout many parts of the country may have given consumers some added impetus to shop in-store rather than rely on online shopping."

Other insights shared by the firm at the halfway point of the season relate to increasing adoption of smartphones and tablets as a sales driver in key categories. For example, the top gaining category for the season-to-date is digital content and subscriptions, which includes digital book, music and video downloads, which has grown 25% versus year ago. The consumer electronics category, despite softening growth in flat panel TV sales, ranks fourth at 17% growth, largely on the strength of smartphone sales. The computer hardware category is seeing gains of 15% on the strength of tablet sales, despite traditional laptop and desktop computers posting more modest gains. Other categories currently performing well include Toys, up 21%, consumer packaged goods, up 18% and video game consoles and accessories, up 16%.

You can be sure that toy and game companies have performed well during Black Friday. With Christmas shopping just around the corner, the holiday season is not over yet. We could see some nice numbers coming out in Q4 from several companies.

Four companies have benefited hugely. Three of them have a dividend yield above 3%.

Mattel Inc.

Mattel (NASDAQ:MAT) is the worldwide leader in the design, manufacture and marketing of toys and family products. The Mattel family is comprised of such best-selling brands as Barbie®, the most popular fashion doll ever introduced, Hot Wheels®, Matchbox®, American Girl®, Radica® and Tyco R/C®, as well as Fisher-Price® brands, including Thomas and Friends®, Little People®, Power Wheels® and a wide array of entertainment-inspired toy lines.

Source: Mattel Analyst Day


Hasbro (NASDAQ:HAS) is a branded play company with a wide-range of immersive entertainment offerings. From toys and games, to television programming, motion pictures, digital gaming and a comprehensive licensing program. Hasbro's well-known brands include TRANSFORMERS, LITTLEST PET SHOP, NERF, PLAYSKOOL, MY LITTLE PONY, G.I. JOE, MAGIC: THE GATHERING and MONOPOLY. The company's Hasbro Studios develops and produces television programming for markets around the world. Programming in the U.S. is distributed on The Hub TV Network, a multi-platform joint venture between Hasbro and Discovery Communications.

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Source: UBS's Best of Americas Conference in London

JAKKS Pacific, Inc.

JAKKS Pacific (NASDAQ:JAKK) is a leading designer and marketer of toys and consumer products with a wide range of products that feature popular brands and children's toy licenses. JAKKS' diverse portfolio includes action figures, electronics, dolls, dress-up, role play, Halloween costumes, kids furniture, vehicles, plush, art activity kits, seasonal products, infant/pre-School, construction toys, ride-on vehicles, wagons, inflatable environments and tents, and pet toys sold under various proprietary brands including JAKKS Pacific®, Creative Designs International™, Road Champs®, Funnoodle®, JAKKS Pets™, Plug It In and Play TV Games™, Kids Only!™, Tollytots®, Disguise® and Moose Mountain®. JAKKS is an award-winning licensee of several hundred nationally and internationally known trademarks including Nickelodeon®, Warner Bros.®, Ultimate Fighting Championship®, Hello Kitty®, Graco®, Cabbage Patch Kids® and Pokémon®.

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Asia Pacific is forecast to surpass North America to become the largest traditional toys and games market with a 28% share of global value sales. All of the three companies are going to profit from this region.

In 2011, the region was also one of the most dynamic globally, recording around 9% value growth in comparison with just 4% globally. Rising disposable incomes, new product launches, the increasing penetration of organised retailing in rural areas and second-tier cities as well as strong demographic fundamentals have all contributed to the region's outstanding performance in recent years.

Traditional Toys and Games Value Sales

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Source: Euromonitor International

Accounting for over 17% of global value sales combined, Japan and China were the second and third biggest traditional toys and games markets in the world in 2011.

Thanks to phenomenal growth in China, Thailand and India, Asia Pacific is projected to be the most dynamic region for traditional toys and games sales in actual terms, adding a whopping $7.2 billion to global sales over the next five years.

Japan, Hong Kong and Singapore were the leaders in terms of per capita spend among 0-14-year-olds in 2011, all recording more than $150 per child. This also highlights the huge contrast between the countries in the region. In 2011, in Japan, the top country in the region, toy spend per child stood at $433 in comparison to just $1 in India.

Traditional Toys and Games Per Capita Spend vs 2011-2016 CAGR

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Note: * Spend per child is calculated as market size divided by number of 0-14-year-olds

China is already the third largest traditional toys and games market globally, and the low current rate of spend per child suggests that it has considerable growth potential. Its 215 million 0-14-year-old population offers great opportunities in terms of traditional toys and games sales. In actual terms, China will add a further US$5.3 billion to global traditional toy sales by 2016.

The fourth company that benefited from this holiday period and I found because a friend of mine just bought a karaoke machine of this company, is called:

The Singing Machine Company, Inc.

Incorporated in 1982, The Singing Machine Company (OTCQX:SMDM) is engaged in the development, production, marketing and distribution of consumer karaoke audio equipment, accessories, music, musical instruments, and licensed youth electronic products. It has a full line of consumer-oriented karaoke machines and music under The Singing MachineSMDigital™, SoundX™, and Sound X Kids™ and other brand names. The company was the first to provide karaoke systems for home entertainment in the United States, The Singing Machine sells its products in North America, Europe and Australia. The Singing Machine is also the first to offer digital music downloads for play on home karaoke machines.

Product Lines

The company has currently two different product lines which consist in total of over 50 different models. The product lines consist of the following:

· Karaoke Machines that incorporate such features as CD plus graphics player, sound enhancement, echo, tape record/playback features, and multiple inputs and outputs for connection to compact disc players, built-in camera, video cassette recorders, and home theater systems. The company's machines sell at retail prices ranging from $30 for basic units to $200 for semi-professional units.
· Musical Instruments which are sold under the "Sound X" ™ and "Sound X Kids" ™ brand. These include semi-professional digital drum sets and keyboards along with youth musical instruments targeted for children to "tween" age demographics. The retail price range is from $19 to $299.

Because I became enthusiastic I learned that the company already has a number of partnerships with big box retailers nationwide for the sell-through of its products, and has signed "a lot of commitments with new retailers" for this holiday season.

The company is the number one in the U.S. and Canada and the best brand for home karaoke. It scores very good in the Musical Best Seller Lists of Amazon and Toysrus.

It released a number of new products this holiday season - with an iPad-docking karaoke machine along with a Retina display iPad App designed specifically for the new machine to provide thousands of streaming karaoke songs available for subscription.

This year the company has also redesigned its flagship Pedestal Karaoke line, which is the company's most visible and highest revenue generating line of products. New features will include recording functionality, easier music downloading experience, as well as enhanced iPhone support.

In October, the company secured a factoring and loan agreement with Crestmark Bank, which provided it with up to $5 million in accounts receivable financing. The new funds allow the company to "significantly improve" its cash flow during this holiday selling season.

Historically, karaoke has been the company's core business. The Singing Machine brand is widely recognized as a leader in karaoke and consequently they hold a dominant market share in the business. The company has determined that it needs to diversify and expand its core focus in order to grow its business. It has therefore refocused its self-perception and is determined to build on its success by defining themselves as a provider of quality in home entertainment - not just home karaoke. Critical to this strategy is a move to add value to the core business of karaoke machine sales. By integrating karaoke machine products with content such as Electronic Downloads, Streaming Media, Community Performance Hosting, and by creating quality, wholesome, home entertainment for the entire family the Singing Machine will not only sell more products, but they will find also new sources of revenue. This company is a niche player in the toys and games market, but will become a music entertainment portal company in the nearby future. The whisper number is that their Black Friday sales were terrific and above expectations.

Final Note

From the big toy and game companies I like Hasbro the most, but all three offer a decent dividend. For speculative investors looking for turnaround situations and have a long term horizon I would suggest have a look at The Singing Machine. I know it is a thinly traded security but I really think there is value out there.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in HAS, OTCQX:SMDM over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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