"Barbie", a production from toy manufacturer Mattel and film studio Warner Bros., is one of this summer's most anticipated films. Thanks to an intensive marketing campaign, including billboards in Times Square and collaborations with companies such as Burger King, a phenomenon called 'Barbiecore' was created, which attracted huge interest. Expectations are rising for ticket sales for this production, which is scheduled for US release today. Warner Bros. Discovery, currently in the midst of an ongoing restructuring, estimates that the 'Barbie' film could bring in $60-100 million from ticket sales this weekend for the label and overall $450-550 million for doll maker Mattel. If this is the case, is it worth considering an investment in these companies?
The restructuring of Warner Bros. Discovery
Warner Bros. Discovery is a multinational media corporation that produces and distributes multimedia content: films, television programmes and video games. The company was formed in 2021 from the merger of WarnerMedia (owner of the brands: HBO, CNN, Warner Bros., DC Comics) and Discovery, Inc. (owner of the Discovery Channel, Animal Planet, HGTV brands). Currently, Warner Bros. Discovery is one of the largest companies of its kind in the media market, owning a wide range of brands and services in the entertainment and media industries.
The company's business model is based on generating profits from these areas through various revenue streams, including: theatrical ticket sales, film and television programme licensing, video game sales and advertising. Warner Bros. Discovery also earns revenue from subscriptions to its streaming platforms HBO Max, Discovery+ and enterprise advertising services.
In the past four quarters, the company reported revenue growth of more than 200% year-on-year, but its operating result was the worst in a decade, showing a large loss. This could be a result of the company's ongoing restructuring as highlighted by the CEO: "This is an important time for Warner Bros. Discovery. We have gone through some major restructurings and have repositioned our business with greater focus and precision. We expect our US DTC business to be profitable in 2023, one year ahead of our forecasts." Nevertheless, even the best forecasts from ticket sales for the Barbie film represent less than 1% of the company's annual revenue. Hence, we will still have to wait for profits for the company as a whole. It is struggling with a relatively high debt-to-equity ratio of 1.05. However, it is not yet threatened by a liquidity problem. A quick ratio of 0.8 means that even when its sales are suspended, the company is able to maintain production over the coming months.
Mattel: Barbie at the forefront. Toy giant in the world of children's fantasy
Mattel is one of the largest toy manufacturers in the world. It designs, manufactures and distributes a variety of toys, games and accessories for children. It is best known for its iconic Barbie doll, which has become a global phenomenon since its launch in 1959.
In addition to Barbie, Mattel has many other well-known and popular brands in its portfolio: Hot Wheels (toys related to cars), Fisher-Price (toys for babies and toddlers), Monster High (dolls related to horror characters) and Thomas & Friends (toys related to trains).
It is Barbie dolls, however, that have had a particular impact on the history of popular culture over the past decades. Mattel, has created an extensive franchise universe, including books, comics, video games, series and films.
On 21 July, the first Barbie adaptation featuring human characters - Ryan Gosling as Ken and Margot Robbie as the title character - will premiere. Although the impact of the production on Mattel's revenue is as yet unknown, the Barbie brand has remained a constant in the company's turbulent recent decades.
Mattel's revenues have declined since 2013, but there was a rebound during the pandemic years. The Barbie brand has remained steady and in 2021 reached its highest sales figures in many years.
Source: Statista, Mattel
According to Statista Market Insights, the doll and plush toy industry probably will generate huge revenues in 2023, with China, India and the US as the segment's largest markets. This could largely be attributed to the current surge in popularity of the Barbie movie. Analyst Drew Crum estimates that Mattel would increase its sales revenue between $450m and $550m.
The expected increase in sales of Barbie dolls could account for between 8.6% and 10% of the company's annual revenue, opening up the possibility of a significant cash injection and increased long-term earnings. Looking at the company's finances, however, the average margin is between 5 and 15%, which could be partly attributed to the high debt-to-equity ratio of 1.2. However, the company has no problems paying its current liabilities, as its quick ratio is 1.5. This means that it can continue its operations for at least 1.5 years using only the most liquid funds.
What does Wall Street think of the share price of Warner Bros. Discovery and Mattel?
According to the Market Screener website, Warner Bros. Discovery has 27 recommendations, most of which are buy recommendations. The average target price is set at USD 20.59, 57% higher than the last closing price. The highest target price is at USD 33 and the lowest is USD 10.
Source: Conotoxia MT5, WarnerBros, Daily
The Mattel company has 12 recommendations. And here, too, they are mostly buy recommendations. The average target price is set at USD 23.27, 9.4% higher than the last closing price. The highest target price is at USD 26 and the lowest is USD 18.
Source: Conotoxia MT5, Mattel, Daily
As we have outlined, the success of the Barbie film could affect both companies differently. Doll manufacturer Mattel seems to be a particular winner. However, following the global slowdown and nourishing economies, both Mattel and Warner Bros may have upside potential.
Grzegorz Dróżdż, CAI MPW, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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