Hasbro Inc. (HAS) recently sealed a deal with Jagex Limited to jointly develop a new online game based on the Transformers brand.
Financial terms of the deal were not disclosed. Per the agreement, the two companies will launch the Transformers online game in North America, Latin America, Europe, New Zealand and Australia in 2012.
UK-based Jagex is one of the largest independent game developers and publishers in the world with millions playing more than 40 online games that it offers. Jagex management sees a sizable market for an online Transformers game that both companies seek to capture in full. Transformers is a profitable brand for Hasbro and is expected to be lucrative in emerging markets in which it operates. It is in fact, one of the healthier brands in China.
Revenue from Transformers and G.I. Joe reached a peak of $700 million in 2009. However, in the fourth quarter 2010, net revenue from the entertainment and licensing segment declined to $136.5 million from $155 million a year ago. This was primarily due to a decrease in movie-related revenues generated by Transformers and G.I. Joe entertainment properties. Accordingly, Hasbro has been trying to come up with a new and improved Transformers brand in order spur its sales.
Hasbro management expects 2011 to be Hasbro’s first year in the digital arena as the company brings to market a Transformers massively multiplayer online game (MMOG) in China. Moreover, in partnership with global retailers, Hasbro will have Transformers toys and games, licensed consumer products, and digital games across all platforms, supporting the July 1 release of Transformers – Dark of the Moon in theaters.
Apart from Jagex, Hasbro also has partnered with NetDragon in China and is in the midst of developing the MMOG, which will launch later this year. Apart from these joint ventures, Hasbro also restructured its Studio’s creative units this month. It split its boys/action and girls/preschool creative teams into separate development and current programming groups to meet increased production.
We appreciate Hasbro’s efforts in product diversification, which bodes well for the company long term. However, most of its agreements will not come to fruition before late 2011. Moreover, the company operates in a highly competitive space. Many of its competitors including JAKKS Pacific Inc. (JAKK) and Mattel Inc. (MAT) are also entering pacts to expand their footprints.
Hasbro currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. We are also maintaining our long-term “Underperform” recommendation on the stock.
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