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'Magic: The Gathering' analysis prompts BofA to double downgrade Hasbro

Stock Markets Nov 14, 2022 07:54AM ET
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© Reuters 'Magic: The Gathering' analysis prompts BofA to double downgrade Hasbro
 
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By Senad Karaahmetovic 

Shares of Hasbro (NASDAQ:HAS) are down more than 6% in pre-open Monday trading after Bank of America analysts double-downgraded to Underperform from Buy as a result of the firm's deep-dive on the company's business "Magic: The Gathering."

The price target is slashed to $42 per share from $72, implying a downside risk of over 30% relative to Friday's closing price of $63.41.

Magic: The Gathering, which is a trading card game, generates about 15% of Hasbro's total revenue and as much as 35% of EBITDA.

"We've spoken with several players, collectors, distributors and local games stores and have become aware of growing frustration. The primary concern is that Hasbro has been overproducing Magic cards which has propped up Hasbro’s recent results but is destroying the long-term value of the brand," Haas said in a client note.

In order to maintain high growth in this business after the pandemic, Hasbro came up with more frequent set releases, more products in each set, and wider distribution. However, this strategist has likely backfired, Haas warns.

"Players can't keep up and are increasingly switching to the "Commander" format which allows older cards to be used. The increased supply has crashed secondary market prices which has caused distributors, collectors and local game stores to lose money on Magic. As a result, we expect they'll order less product in future releases," the analyst added.

Moreover, Haas notes that the price for Magic 30th Anniversary set, set at $999 for four booster packs, is "excessively high."

"This has created panic among collectors and we're seeing collections being liquidated now that the scarcity value of Magic is in question."

Bank of America analysts are also growing increasingly cautious on Hasbro's Consumer Products segment amid "negative read-through from retailers and peers."

'Magic: The Gathering' analysis prompts BofA to double downgrade Hasbro
 

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Comments (3)
Sesha Malone
Sesha Malone Nov 15, 2022 9:45AM ET
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The 30th Anniversary set is especially insulting. Theoretically the whole idea of the set is to celebrate 30 years of people getting together and playing and collecting the game together. What they've done with the $999 price tag is to price out the average player from participating in the celebration. Only people who can afford to drop a grand on the hobby are invited to the party. Couple this with the fact that the cards from the set aren't even tournament legal, they're replica reprints of the original legendary cards of the game that literally have no value outside of collectors of this specific set, and you've got a disaster of a product. It's a slap in the face to customers, and it shows just how tone-deaf the company is. It is a declaration that on the 30th anniversary of the product that they think of the fans as piggy banks to crack open when their bad decisions land them in hot water.
enes brick
enes brick Nov 14, 2022 11:09AM ET
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Hasbro will be hurt badly going forward, this is just a new wave. As someone who is in this community, i can tell, people dont care anymore with all these pricy boxes every 3 months. They killed standard play, now commander and modern play is more popular. Only way that can keep Hasbro safe is MTG arena - online game. but that is too pricy too. makes no sense to pay 50$ for 50 packs on online game. real feel of magic is paper cards.
AA BB
AA BB Nov 14, 2022 11:09AM ET
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Interesting comment. Not so frequent to see the opinion of a trader, who is also an actual trading cards player!
Benjamin USA
Benjamin USA Nov 14, 2022 8:35AM ET
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Lol, classic!
 
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