Despite forecasting a drop in sales this year due to the Hollywood strike’s impact on its entertainment segment, Hasbro Inc. is poised for a substantial profit surge in 2023, according to BofA analysts. The toy and game maker’s expected windfall is largely attributed to the success of games like Monopoly Go and Baldur’s Gate 3, which are not only popular but also generate high-margin licensing revenue for the company.

In an era where toymaking and filmmaking are gravitating towards repurposing characters from well-established franchises, Hasbro stands in a strong position with an extensive intellectual property portfolio. The company’s rivals, such as Mattel Inc., are already capitalizing on this trend, with the latter citing its summer blockbuster “Barbie” as a “template” for future content. BofA analysts Jason Haas and Elizabeth Suzuki noted in a recent research note that investors might be underestimating Hasbro’s potential to generate significant revenue from its IP library, which includes popular franchises such as Transformers, Power Rangers, GI Joe, and My Little Pony.

Hasbro Set to Boost Profit from Game Popularity, Analysts Say

Hollywood Strike Impacting Sales

Hasbro Inc., a leading toy and game manufacturer, recently forecasted a decrease in sales for the current year due to the ongoing strike in Hollywood which has impacted their entertainment segment. This comes at a time when toymaking and filmmaking are increasingly relying on repurposing characters from well-established franchises.

Bank of America Optimistic About Hasbro’s Future

Despite the current dip in sales, Bank of America (BofA) analysts Jason Haas and Elizabeth Suzuki, expressed optimism about the company’s prospects in a research note issued on Tuesday. They believe that investors are underestimating Hasbro’s potential to generate high-margin licensing revenue from its extensive library of intellectual properties. This library includes popular franchises such as Transformers, Power Rangers, GI Joe, and My Little Pony.

Strong Performance of Recent Game Launches

Hasbro has recently launched two digital games—Monopoly Go and Baldur’s Gate 3—that are performing well and generating significant royalty revenue. Monopoly Go, developed by an outside company, blends digital and casino elements with new settings to the classic board game. Baldur’s Gate 3, produced by Larian Studios, is a role-playing video game that incorporates game-play mechanics from Dungeons & Dragons, a franchise owned by Hasbro.

Potential Revenue from New Games

BofA analysts estimate that if Monopoly Go generates $500 million in sales during its first year, it could contribute $60 million of revenue to Hasbro, or an extra 33 cents to the company’s earnings per share, largely in 2024. If Baldur’s Gate 3 sells 10 million units, the gains could equate to $61 million of revenue for Hasbro, or 34 cents to earnings per share through this year and next. Monopoly Go has already made $200 million in sales since its mid-April launch, while Baldur’s Gate 3 had sold 2.5 million units prior to its PC release on August 3.

Hasbro Shares Rally

Following these projections, the BofA analysts raised their price target on Hasbro to $90 from $85 and increased their 2024 earnings-per-share estimate to $5 from $4.80. Consequently, Hasbro shares rallied 7.3% on Tuesday and are up 9.5% for the year.

Takeaways

While Hasbro may be facing a rough patch due to the Hollywood strike, the company’s future looks promising. With successful game launches and the potential for high-margin licensing revenue from its intellectual property library, Hasbro is well-positioned for growth. Furthermore, the company’s decision to focus on its core toys and games, along with the sale of its eOne film and TV business, demonstrates a strategic move toward consolidation and focusing on strengths. As always, investors should keep an eye on the performance of Monopoly Go and Baldur’s Gate 3, as their success could significantly impact Hasbro’s revenues and profitability.