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Video Games & E-commerce Sales High: 3 Toy Stocks to Watch

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The toy industry has been doing exceptionally well, despite the pandemic scenario. The outbreak has forced people to spend more time at home and parents are spending more on toys and games. This change in spend pattern is aiding the industry.

Meanwhile, the industry continues to show resilience on the back of their transformed strategic roadmap. Firstly, toy manufacturers have resorted to reducing product costs and operating expenses, thereby allowing them to be profitable from their respective core product categories. Secondly, they have been working on initiatives to remove lower margin products from their portfolio and take into account the total cost of a product apart from ex-factory costs. The procedure leads to lower reserves for allowances and fewer margin closeout sales, thereby paving a path for leaner and focused organization.

Moreover, companies are optimizing their respective operations and accelerating top-line growth by capturing the full value of their respective IP’s, through franchise management as well as online retail and e-commerce.

Video Games: a Driving Factor

The fact that kids are seeing their parents spend so much time and effort doing home remodeling projects and improvements has most likely emulated in their play patterns. Notably, demand for toys tied to video games have remained strong.

This makes sense as video games did extremely well in the preceding year with kids spending more time at home. That exposure to digital gaming experiences increased demand for the toys.

Per NPD report, total video games sales continued its upward momentum in May 2021. Total video game sales came in at approximately $4.5 billion in May 2021, up 3% year over year.

High Hopes On E-commerce Business

Meanwhile, the pandemic scenario continues to shift consumers’ shopping behaviors, thereby accelerating the shift toward digital platforms. Notably, e-commerce retailers in particular are enjoying success, as consumers have increased adoption of platforms such as e-tailers, dedicated shopping sites by key retailers, click and collect, and social media. Also, companies are witnessing constant support by pure-play e-com retailers and omnichannel retailers owing to investments in technology and services like curbside pickup.

According to Statista Research Department, U.S. e-retail sales in the toys, hobby, and DIY segment generated approximately $93 billion (as of May 20, 2021). This suggests $500 million increase from 2020 annual revenues.

Going Forward, the uptrend is likely to continue, as the Statista Digital Market Outlook estimates e-commerce revenues (in the toys, hobby, and DIY U.S. market segment) to reach $106 billion in 2025.

What Next for The Industry?

The toy industry is likely to have some difficult comparisons in 2021 as manufacturers sell-in and retail sell-through were exceptionally strong last year. Nonetheless, there is potential for more upsides as companies are yet to achieve their full potential in accordance with their respective IPs. This along with focus on design led innovation, cultural relevance and operational excellence are likely to benefit the industry in the upcoming periods.

3 Stocks to Keep an Eye On

Given the backdrop, this seems like a prudent time to look at some toy manufacturers with strong fundamentals that stand to benefit. Here, we have highlighted three stocks that have not only performed better than the industry in the past year but also boast solid prospects. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment ResearchImage Source: Zacks Investment Research

Hasbro, Inc. (HAS - Free Report) : Headquartered in Pawtucket, RI, Hasbro is engaged in the design, manufacture and marketing of games and toys. The company continues to focus on plans to deliver robust line-up of entertainment and innovation from E1 and its partners in 2021. On the content side, E1 production is gradually recovering through a new animated series on Netflix and Alien TV. The team also continues to develop and produce new content for Peppa Pig, PJ Mask and the My Little Pony 2021 feature film. Hasbro is witnessing strong gaming amid the coronavirus pandemic. The company has a supreme gaming portfolio and is refining gaming experiences across a multitude of platforms like face-to-face gaming, off-the-board gaming and digital gaming experiences in mobile.

Shares of this Zacks Rank #2 (Buy) company have gained 29.2% in the past year compared with the industry’s 17.6% growth. Moreover, the company’s earnings for 2021 are anticipated to increase 20.6%. In the past 90 days, earnings estimate for 2021 has been revised upward by 4.6%.

JAKKS Pacific, Inc. (JAKK - Free Report) : Headquartered in Santa Monica, CA, JAKKS Pacific is a multi-brand company that designs and markets a broad range of toys and consumer products. The company’s strategic acquisitions, solid international footprint, focus on innovation and collaborations with popular brands and movie franchisees are likely to drive the top line. JAKKS Pacific has regularly brought in novelty in its products to cope with the changing play pattern of children and boost demand. Recently, the demand for physical toys has been declining due to younger children’s preference for digital games and other electronic learning tools. Consistent with this trend, the company introduced a number of mobile gaming apps and digital games along with the physical toys. This will likely help the company cash in on the demand for smartphone gaming. JAKKS Pacific is also connecting with customers through digital videos, display banners and social ads, which will improve customer experience. Such investment in digital innovation will help in brand building apart from helping the company capitalize on the lucrative technology-based gaming market.

Shares of this Zacks Rank #3 (Hold) company have surged 44.1% in the past year. Moreover, the company’s earnings for 2021 are anticipated to increase 53.5%. In the past 90 days, loss estimate for 2021 has narrowed to 80 cents from a loss of $2.90.

Mattel, Inc. (MAT - Free Report) : Headquartered in El Segundo, CA, Mattel is the world’s largest manufacturer of toys. Robust Barbie brand and Hot Wheels sales are driving its performance. The company is also benefiting from robust e-commerce growth and highly-efficient supply chain. Mattel continues to focus on creating innovative products and experiences that inspire, entertain and develop children. It is also making significant progress to transform Mattel into an IP-driven high-performing toy company. Going forward, the company is focused on cost savings and productivity initiatives to support growth and rebuild margins.

Shares of this Zacks Rank #3 company have gained 99.4% in the past year. Moreover, the company’s 2021 earnings are anticipated to increase 66.7%. In the past 90 days, earnings estimate for 2021 has been revised upward by 20%.

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