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3 Toys & Games Industry to Watch Amid Industry Woes
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The Zacks Toys - Games – Hobbies industry has been hurt by cost inflation. A decline in retail sales of toys remains a concern for the industry. However, the robust performance of 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. , Take-Two Interactive Software, Inc. (TTWO - Free Report) and JAKKS Pacific, Inc. (JAKK - Free Report) , are likely to gain from the aforementioned trends.
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, stemming from 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 denting the industry’s performance. 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.
Toys Retail Sales Decline in 2022: Toys sales declined in 2022. Per NPD Group, U.S. retail sales of toys dropped 0.2% in 2022. Unit sales declined by 4%, whereas the average selling price came in at $12.68, up 3% year over year. Nevertheless, the toy industry growth contributed to a three-year compound annual growth rate (CAGR) of 10%, aided by average selling price and unit sales growth of 5% and 2%, respectively. The industry performance in 2022 was hurt by inflationary pressure, rising interest rates, weather distributions and concern regarding the new COVID variant threat.
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. The industry players have been capitalizing on new distribution methods, developing digital-play components, exploring 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 #240, which places it in the bottom 2% of 251 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 Nov 30, 2022, the industry’s earnings estimates for the current year have moved south by 15.9%.
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 Underperforms the S&P 500
The Zacks Toys – Games – Hobbies industry has underperformed the S&P 500 Index. The industry has declined 15.1% over this period compared with the S&P 500 decline of 10.8%. In the same time frame, the sector has declined 21%.
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 21.51X, higher than the S&P 500’s 17.92X 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 25.6X, 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 consoles and online and mobile games. Activision Blizzard has been eyeing the lucrative esports market. With continued increases in viewership, corporate sponsorships and growing media coverage, esports is here to stay.
Shares of this Zacks Rank #3 (Hold) company have declined 6.5% 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 0.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price & Consensus: ATVI
Take-Two Interactive Software: Based in New York City, Take Two Interactive Software is a leading developer and publisher of video games. Take Two’s growth is primarily driven by its popular franchises — Grand Theft Auto (GTA) and Red Dead Redemption. The growing traction in the NBA franchise bodes well for the company. Net bookings to continue the momentum owing to strong growth in recurrent consumer spending.
Shares of this Zacks Rank #3 company have declined 31.9% in the past year. In 2023, the company’s sales are likely to witness a growth of 54% year over year.
Price & Consensus: TTWO
JAKKS Pacific: Based in Malibu, CA, JAKKS Pacific is a multi-brand company that designs and markets a broad range of toys and consumer products. JAKKS Pacific is committed to diversifying its footprint outside the United States. Consistent with its endeavors, the company opened sales offices and expanded distribution agreements for its products.
Shares of this Zacks Rank #3 company have increased 18.5% in the past year. The company’s earnings have surpassed the Zacks Consensus Estimate in all of the trailing four quarters, with the average being 153.2%.
Price & Consensus: JAKK
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3 Toys & Games Industry to Watch Amid Industry Woes
The Zacks Toys - Games – Hobbies industry has been hurt by cost inflation. A decline in retail sales of toys remains a concern for the industry. However, the robust performance of 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. , Take-Two Interactive Software, Inc. (TTWO - Free Report) and JAKKS Pacific, Inc. (JAKK - Free Report) , are likely to gain from the aforementioned trends.
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, stemming from 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 denting the industry’s performance. 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.
Toys Retail Sales Decline in 2022: Toys sales declined in 2022. Per NPD Group, U.S. retail sales of toys dropped 0.2% in 2022. Unit sales declined by 4%, whereas the average selling price came in at $12.68, up 3% year over year. Nevertheless, the toy industry growth contributed to a three-year compound annual growth rate (CAGR) of 10%, aided by average selling price and unit sales growth of 5% and 2%, respectively. The industry performance in 2022 was hurt by inflationary pressure, rising interest rates, weather distributions and concern regarding the new COVID variant threat.
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. The industry players have been capitalizing on new distribution methods, developing digital-play components, exploring 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 #240, which places it in the bottom 2% of 251 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 Nov 30, 2022, the industry’s earnings estimates for the current year have moved south by 15.9%.
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 Underperforms the S&P 500
The Zacks Toys – Games – Hobbies industry has underperformed the S&P 500 Index. The industry has declined 15.1% over this period compared with the S&P 500 decline of 10.8%. In the same time frame, the sector has declined 21%.
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 21.51X, higher than the S&P 500’s 17.92X 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 25.6X, 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 consoles and online and mobile games. Activision Blizzard has been eyeing the lucrative esports market. With continued increases in viewership, corporate sponsorships and growing media coverage, esports is here to stay.
Shares of this Zacks Rank #3 (Hold) company have declined 6.5% 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 0.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price & Consensus: ATVI
Take-Two Interactive Software: Based in New York City, Take Two Interactive Software is a leading developer and publisher of video games. Take Two’s growth is primarily driven by its popular franchises — Grand Theft Auto (GTA) and Red Dead Redemption. The growing traction in the NBA franchise bodes well for the company. Net bookings to continue the momentum owing to strong growth in recurrent consumer spending.
Shares of this Zacks Rank #3 company have declined 31.9% in the past year. In 2023, the company’s sales are likely to witness a growth of 54% year over year.
Price & Consensus: TTWO
JAKKS Pacific: Based in Malibu, CA, JAKKS Pacific is a multi-brand company that designs and markets a broad range of toys and consumer products. JAKKS Pacific is committed to diversifying its footprint outside the United States. Consistent with its endeavors, the company opened sales offices and expanded distribution agreements for its products.
Shares of this Zacks Rank #3 company have increased 18.5% in the past year. The company’s earnings have surpassed the Zacks Consensus Estimate in all of the trailing four quarters, with the average being 153.2%.
Price & Consensus: JAKK