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Spin Master Corp. Key takeaways from investor meeting
Our view: We had the opportunity to host Max Rangel, Global President and CEO, and Fredrik Loving, President of Spin Master Digital Games, for an investor event. Topics in focus included the outlook/growth strategy for the Digital platform, the company’s third-party entertainment licensing strategy, how the product portfolio is being managed, and how the company is positioned amidst the increased prevalence of e-commerce. Overall, we walked away incrementally positive on the outlook and learned a great deal about how the company is thinking about its Digital platform.
Key points:
Digital Games: A fast-growing and high-margin platform – Mr. Loving noted that the global gaming industry is expected to total ~$180B in 2021 (+9.0% CAGR 2018–22) and “mobile” is expected to represent ~ $85B (~40%) of this. The company continues to see meaningful runway for organic growth, which will likely be driven by new product launches and expansion of existing properties, and over time, acquisitions will likely complement the organic initiatives. Given the higher-margin nature of this platform (we estimate a +50% EBITDA margin), investors have been quite focused on the progress and future potential of this business line. In Q3, the company reported 71% YoY growth in Toca Boca Monthly Active Users (“MAU”) to 65MM and 40%+ YoY growth in Sago Mini Active Subscribers to 305K. Management highlighted the opportunity to further expand these two properties by adding new features/content. In addition to expanding/ growing these existing properties, the Noid platform will be leveraged to create Digital content for other Spin Master properties (we expect more details on this initiative in 2022 onwards).
Third-party license portfolio continues to expand – Over recent years, the company has made meaningful progress on this front by securing licenses for some well-known brands. This has included the multi-year agreement with DC Comics, a 10-year agreement with Monster Jam, and partnerships with League of Legends and Harry Potter, among others. Looking ahead, we expect third-party licenses to be a major growth driver in 2022 with the expected release of four DC Comics movies (in addition to entertainment/ product releases associated with other licenses that the company holds). We believe the large slate of DC Comics movie releases planned for next year should help to alleviate investor concerns related to the “difficult comparable” faced by the Pre-School segment in 2022 (given revenues related to the Paw Patrol movie from 2021).
Managing through inflationary/supply chain pressures – Management highlighted reduced promotional activity and selective pricing actions as some of the levers they are using to offset the impact of rising input (e.g., resin, chips, and plastic) and labour/freight costs. Looking ahead, the combination of price increases and a greater mix of higher-margin Digital Games revenue should help to mitigate the impact of inflation on margins. We also believe that the strong Q3 results and the pull-forward of some demand/revenue help to de-risk the full-year outlook.
