Back to top

Image: Bigstock

3 Stocks to Watch From the Challenging Toys & Games Industry

Read MoreHide Full Article

The Zacks Toys - Games – Hobbies industry has been hurt by cost inflation. However, robust demand for smart toys, STEM toys (Science, Technology, Engineering and Math), sports toys, and fashion dolls and accessories bode well. The industry participants have been undertaking efforts on the digital front and focusing on better execution of marketing and promotional initiatives to drive growth. The industry players, including Activision Blizzard, Inc. (ATVI - Free Report) , Electronic Arts Inc. (EA - Free Report) and Hasbro, Inc. (HAS - Free Report) , are likely to gain from the trends mentioned above.

Industry Description

The Zacks Toys - Games – Hobbies industry comprises companies that design, manufacture and sell various games and toys. While traditional toymakers primarily focus on marketing and selling action figures, accessories, dolls, youth electronics and arts and crafts, other industry players develop and market content and services on video game consoles, personal computers and mobile. Some of the industry participants offer video game platforms, playing cards, Karuta and other products, along with handheld and home console hardware systems and related software. A few companies also develop and operate retail and online military simulation games and provide multiplayer and single-player games.

3 Trends Shaping the Future of Zacks Toys - Games - Hobbies Industry

High Costs Remain Concerns: Cost inflation had a negative impact on the industry due to a rise in raw materials prices. Temporary store closures in some parts of the world, product shortages, lower retail inventories and supply-chain disruption have been hurting the industry. Higher employee-related expenses are also a cause for concern. The companies have been resorting to product launches and shifting toward more technology-driven toys to boost sales, which might drive profits in the long haul. However, costs related to the initiatives may prove detrimental to the industry in the near term. Maintaining liquidity has become an arduous task for a number of industry participants in the current scenario.

Robust Demand for Toys: The industry is benefiting from online sales of board games and building sets. sales of U.S. toys have increased by 2% this year through September compared with same period in 2021 across the 12 global markets tracked by the NPD Group. During the same period, toys’ sales have increased in seven countries but declined in France, Germany, UK and Belgium. Most toy companies are focusing on bolstering their online business. The industry is anticipated to perform impressively in 2023.

STEM Toys Gaining Popularity: Amid declining sales of traditional toys, the robust demand for STEM toys has come as a breather. The Asia Pacific region has emerged as a major growth driver for STEM toys. Countries like India, Malaysia, Singapore and Thailand are witnessing rising demand for STEM toys. Parents are focusing more on educational toys to teach their children during the pandemic. Per a Technavio report, educational toy sales are likely to witness a CAGR of 8.7% during 2022-2027. The industry players have been capitalizing on new distribution methods, development of digital-play components, exploration of ventures with other industries, and focusing on international expansion to drive growth. The industry has enormous growth potential in China and Brazil as both countries have a massive population of kids aged zero to 14 years.

Zacks Industry Rank Indicates Dismal Prospects

The Zacks Toys – Games – Hobbies industry is grouped within the broader Zacks Consumer Discretionary Sector.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dismal near-term prospects.

The Zacks Toys – Games – Hobbies industry currently carries a Zacks Industry Rank #188, which places it in the bottom 25% of 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. Since Mar 31, 2022, the industry’s earnings estimates for the current year have moved south by 16%.

Before we present a few stocks that investors can take a look at, let’s analyze the industry’s recent stock-market performance and valuation picture.

 

Industry Outperforms the S&P 500 & Sector

The Zacks Toys – Games – Hobbies industry has outperformed the S&P 500 Index and its sector in the past year. The industry has increased 2.2% over this period against the S&P 500 and the sector’s decline of 16.1% and 34.4%, respectively.

One Year Price Performance

Industry's Current Valuation

Comparing the industry with the S&P 500 Index on the basis of forward 12-month price-to-earnings, which is a commonly used multiple for valuing the industry, we see that the industry is trading at 20.61X, higher than the S&P 500’s 17.79X but lower than the sector’s 18.07X.

Over the last five years, the industry has traded as high as 31.97X and as low as 19.37X, with the median being 25.79X, as the chart shows.



3 Zacks Toys Stocks to Keep an Eye On

Activision Blizzard: Headquartered in Santa Monica, CA, Activision Blizzard is a leading developer and publisher of console, online and mobile games. Activision Blizzard has long been eyeing the lucrative esports market. With continued increases in viewership, corporate sponsorships and growing media coverage, esports is here to stay. Newzoo expects the esports industry to generate revenues of $1.8 billion by 2022.

Shares of this Zacks Rank #3 (Hold) company have appreciated 28.4% in the past year. Its earnings for 2023 are anticipated to increase 29.4%. In the past 30 days, the earnings estimate for 2023 has been revised upward by 3.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Price & Consensus: ATVI

Electronic Arts: Headquartered in Redwood City, CA, Electronic Arts is a leading developer, marketer, publisher and distributor of interactive games (video game software and content). Electronic Arts’ digital and live services are expected to gain from portfolio strength on the back of the franchises, including Apex Legends, FIFA, Madden NFL and Star Wars. EA has been witnessing a rise in usage and engagement levels for games like Battlefield, FIFA 22, Madden NFL, It Takes Two, F1, Mass Effect Legendary Edition, The Sims 4 franchise and Star Wars: Galaxy of Heroes.

Shares of this Zacks Rank #3 company have gained 0.8% in the past year. In 2023, the company’s earnings are likely to witness growth of 7.2% year over year.

Price & Consensus: EA

Hasbro: Headquartered in Pawtucket, RI, Hasbro is engaged in the design, manufacture and marketing of games and toys. Emphasis on strategic partnerships and a strong product lineup are likely to aid the company in the upcoming periods. Moreover, the company has increased its focus on multigenerational fan engagement by means of omni-media play and entertainment offerings.

Shares of this Zacks Rank #3 company have declined 39.9% in the past year. The company’s earnings for 2023 are anticipated to increase 10.2%.

Price & Consensus: HAS


 



In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Activision Blizzard, Inc (ATVI) - free report >>

Hasbro, Inc. (HAS) - free report >>

Electronic Arts Inc. (EA) - free report >>

Published in