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Spin Master Corp. Key takeaways from investor meetings
Our view: We had the opportunity to host Mark Segal (CFO) for a day of investor meetings. Management commentary highlighted the favourable setup for Spin Master in late-2021 and 2022, and in our view, the current valuation offers a very attractive entry point. The company is managing well through the supply chain/freight headwinds (we expect good product availability through the holiday shopping period), the demand environment remains supportive, and the slate of 3rd party licenses (DC Comics/Harry Potter/Monster Jam/etc.), new product launches, and continued progress with the Digital platform should drive good growth through 2022.
Key points:
Managing well through global supply chain pressures – The outlook for product availability during the holiday selling period was top of mind for investors. Management commentary indicated that the company is managing well through the supply chain headwinds and should have the necessary amount of toys on shelves during the holiday selling period.
Digital platform in early stages of growth ... with much more to come – Given the margin-accretive nature of this business line, investors have been looking to better understand the outlook for this platform. In Q3, the company reported 71% YoY growth in Toca Boca Monthly Active Users and 40%+ YoY growth in Sago Mini Active Subscribers. Toca Life World was also recently named the iPhone app of the year for 2021, a significant achievement for this brand. In addition to future growth with Toca Boca and Sago mini, the company's new Noid platform will focus on developing Digital content for Spin Master's owned IP (think Paw Patrol, Kinetic Sand, etc.). In our view, while investors are increasingly recognizing the potential of the Digital business, the recent progress and outlook are not yet reflected in the company's valuation (Spin Master shares trade at 8.5x 2022 EBITDA, a 1.5x discount to MAT and ~3.5x discount to HAS). The company is likely to provide additional metrics for this business line through 2022, which should allow investors to better understand the current contribution and long-term potential of this business.
Thoughts on Paw Patrol and third-party licenses into 2022 – 2021 results will reflect the benefit of the Paw Patrol movie, which drove incremental toy sales over and above the "base" business. While this platform will have a tougher YoY comp in 2022, the company will continue to support this franchise with fresh content (new seasons + annual special), and into 2023, we expect the 2nd Paw Patrol movie and the spin-off series to drive growth for this franchise. Management also highlighted the continued opportunity for Paw Patrol in emerging markets and parts of Asia (still in early innings in markets such as China/Japan). We also expect 3rd party entertainment licenses to support growth in 2022 (this includes 4 DC Comics movies, a Harry Potter related movie, in addition to existing licenses such as Monster Jam). In our view, this should more than offset the expected moderation in Paw Patrol related toy sales.
