Hasbro stock devaluation for "overproduction"
Economics forum
Posted on Nov. 14, 2022, 4:55 p.m. by legendofa
I'm seeing articles about Bank of America demoting Hasbro's stock value because of M:tG's "overproduction." Could somebody more knowledgeable about the financial world please explain what this means, how much influence Bank of America has, and what this might mean for future production?
Most of the popular articles I'm seeing are pretty sensationalist, and the more descriptive ones are paywalled.
So what is BofA's role here? I understand that it was their analysis that prompted this. Are they WotC/Hasbro's primary financial institution, or a third party?
I don't want to come across as skeptical or anything, I'm just impressed that Bank of America can release a report like that and am curious what the process is.
November 14, 2022 6:25 p.m.
Bank of America is a third party. The context is that they are in the role of an advisor to investors and recanted their prior recommendations and warned clients against buying Hasbro stock.
More importantly, it was the first major time someone actually looked into Magic specifically. Investors for a while have been just seeing “Wizards is doing well, surely that means all is okay long-term” - this report put a major crack in that façade and indicated a fundamental justification for being bullish on Hasbro might not have merit.
November 14, 2022 6:48 p.m.
Caerwyn Thanks. Now that I have some background, this story becomes a lot more interesting.
November 14, 2022 7:38 p.m.
Dead_Blue_ says... #6
Easy ARENA combined with Covid killed standard their most profitable format. They went from making $$$ per customer to making cents for digital assets.
November 14, 2022 9:26 p.m.
Most of Wizards decisions lately have been about driving short-term sales. The know the collector's market (as opposed to the people who buy primarily to play) drives a lot of purchasing. That's why there are a bajillion variations on every card and why the $999 4-pack box of proxies got printed.
But there is a risk with trying to wring money out of that market repeatedly. The collectors are starting to realize that Wizards is trying to game them. And the players are getting burnt out because there are too many cards and too many products released every year. This year alone Wizards released 2312 first prints of cards. In 2020 they released 1246. That kind of expansion just isn't sustainable for the player base.
Wizards also only seems to care about Commander at this point since every product seems built around it. And as Dead_bluE pointed out, they also killed Standard, which was very profitable for them for a long time.
I think a big challenge here is that Wizards likely can't turn this around quickly. They do all their product development years in advance. Even if Wizards wanted to cut back they'd have 1-2 years of lag minimum.
November 14, 2022 10:24 p.m.
CoarselyRefined - I do not think we have enough data to speculate on the future. This is one analyst’s report based on data Hasbro all but certainly already was aware of. I do not think they are going to course correct much at this time - they’re extremely unlikely to abandon any of their current projects in the works, and those are often planned years in advance. What changes do occur are going to be decided in a large part based on shake ups within Hasbro, not what someone at a bank said - so using this one data point and extrapolating therefrom is about as useful as reading tea leaves.
Dead_Blue_ - The data simply shows that you are wrong, as does the very issue this thread originated discussing. It is an established fact that Magic has greater revenues at any point in its history, and that Arena is a large part of that (also general increase in popularity of the game). The “loss” of Standard as you call it simply did not hurt their bottom line. Never underestimate how much revenue microtransactions can generate; and don’t forget that Arena doubles as a free advertisement for paper Magic.
November 14, 2022 10:25 p.m.
Dead_Blue_ says... #9
I’d be interested in seeing that data, or even a rough summary of it? I was listening to a video break down of it and they said Wizards was making about 75cents per average Arena player
November 15, 2022 midnight
Dead_Blue_ - If you read the quarterly Hasbro investor reports, you’ll see plenty of data showing that Magic is consistently growing its revenues. While it might be true that Wizards makes less per person on Arena, that is more than offset by the increase in availability to players and the fact it is bringing more people into the game. And I say “might” because most constructed decks do not actually bring in money to Wizards - at least not directly. Those decks are purchased on the secondary market, whereas 100% of Arena revenues go to Wizards.
Caerwyn says... #2
For investors, this means a fair bit, at least in the short term. Hasbro’s stock has been struggling all year, with Magic a major factor propping it up. News that Magic might also be struggling was certain to cause a bit of a panic - time of writing, HAS stock lost 9.86% in value just since the BoA analysis went public.
What it means for Hasbro, Wizards, and Magic, however, is a more complicated question. Hasbro’s finances have been a bit of a mess for a while, with Magic being their cash cow. Magic saw a surge in popularity over the pandemic and incredible growth - leading some investors and Hasbro itself to feel bullish on Magic’s prospects, but there have been issues indicating blood in the water. For example, the Q3 Hasbro investors report noted that supply chain costs are still hurting Magic’s bottom line, and added that licensing fees for Universes Beyond are incredibly expensive and also reducing profits.
Personally, I expect we will see some changes to Magic in a few months, but I think that will have more to do with the Chief Financial Officer of Hasbro retiring. The new CFO, when one is hired, is likely going to take a good hard look at Hasbro’s golden goose and evaluate its potential as a revenue stream. They likely are going to consider what this report says as a factor in their decision - especially given how hard it tanked the stock in a single day - but they’ll also be looking at a whole host of other factors and red flags that Hasbro itself has been signalling for several quarters now.
November 14, 2022 5:22 p.m.