Hasbro (HAS) announced its new five-year plan on Oct. 4 at the toy company’s annual Investor Day presentation.
CEO Chris Cocks was extremely excited about its plans for the future, which include delivering $300 million in annual cost savings over the next three years, $8.5 billion in annual revenue or greater by 2027, and operating profit growth of 50% over the next three years.
“Hasbro has many strengths: amazing brands that span generations, a gaming portfolio second to none, a history of play and entertainment innovation led by some of the best teams in the business, and unwavering corporate citizenship,” said Chris Cocks, Chief Executive Officer, Hasbro. “Building on these strengths, today we announced a new day for Hasbro with the introduction of Blueprint 2.0.”
Hasbro has ambitious goals for the next 3-5 five years. Long-time shareholders have likely heard this bravado before.
It could be biting off more than it can chew. Here's why I feel this way.
We’ve Been Here Before
In November 2017, Hasbro offered to buy Mattel (MAT) for an undisclosed amount. Mattel turned down the proposal. At the time, Mattel had a market cap of $5 billion, while Hasbro’s was $11 billion, more than double.
Today, Mattel’s market cap is $7 billion, 40% higher, while Hasbro’s is $9.5 billion, 14% less. It’s a good thing for Mattel shareholders that the board said no. Hasbro has been spinning its wheels for years.
If you bought $1,000 of Hasbro stock in March 2015, you would have approximately the same amount today. If you invested $1,000 in the S&P 500 SPDR ETF (SPY) over the same period, you would have nearly $1,800.
While hindsight is 20/20, anyone still holding after more than seven years knows that Hasbro has talked a big game before.
In February 2021, it had big things to say about the company’s future entertainment projects at its Investor Day. Fourteen months earlier, Hasbro acquired Entertainment One for $4.6 billion. It was ready to monetize that acquisition.
“Sometime between 2022 and 2023, you should see two to three movies every year from us and three to four streamed shows,” CNBC reported Hasbro CEO Brian Goldner said in an interview in February 2021. “And then we’ll scale that as we add new IP while we’re also doing subsequent seasons of the shows that we already [created].”
Goldner died in October 2021, a few days after retiring from the CEO job for health reasons.
In August, Bloomberg reported that the company’s strategic review was considering restructuring Entertainment One or selling off some of its assets. While nothing’s been officially announced, it’s clear that Hasbro’s having difficulty delivering on the potential it spoke of when it doled out several billion for Entertainment One in late 2019.
Activist investor Alta Fox Capital Management pointed out in an April letter to Hasbro shareholders that the purchase of Entertainment One has been an unmitigated disaster.
“We view the defining moment of the ‘Brand Blueprint’ era as the 2019 acquisition of eOne for $4.6 billion, a 30% premium to eOne’s all-time-high share price and approximately 18x its trailing 12 months EBITDA,” Alta Fox Managing Partner Connor Haley wrote.
“This seemingly illogical deal diluted shareholders, added a substantial amount of debt to the balance sheet, complicated the investor narrative and destroyed significant value.”
I encourage you to read Haley’s entire letter before buying Hasbro stock.
Take Blueprint 2.0 With a Grain of Salt
As I read the prepared comments of CEO Chris Cocks, I can’t help but think of the real estate agent showing a terrible listing, doing everything in their power to keep the potential buyer from noticing all the blemishes.
While he says all the right things, it’s evident that he’s reaching, hoping that investors will buy into Blueprint 2.0. Down 32% year-to-date, Hasbro needs a big play to spark a comeback.
I’m just not sure it’s there for the taking.
Cocks refers to Hasbro’s Brand Insights Platform as the bedrock of Blueprint 2.0.
“At the core of our new blueprint is the consumer, and we are making an all-in bet to be the best in the industry at understanding and delivering for our fans. We call this the BRAND INSIGHTS PLATFORM,” Cocks stated.
“The BRAND INSIGHTS PLATFORM underlies our Blueprint 2.0 and will combine all new technology capabilities, a significant upgrading of our data and analytics team and a network of digital, direct, experiential, and partner-based data feeds.”
The CEO’s comments leave me scratching my head, trying to figure out who matters to Hasbro other than the consumer. After all, they’re the ones that pay the executives' salaries.
Isn’t the consumer the focus of every consumer-facing business?
I understand the part of its plan that seeks to focus on its most profitable brands. It always makes sense to keep it simple. The best businesses do a few things well. They tend to stay away from being generalists.
There is hope, however.
Alta Fox supports the new Hasbro CEO and remains cautiously optimistic that the stock’s performance will turn around after five years of shareholder misery.
I’m not so confident.
If you’re considering investing in Hasbro, I would wait at least six months to a year to see if the company sticks to its plans. Something tells me it won’t.
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