BofA analysts said in a downgrade of the stock on Monday that an overstock of "Magic: The Gathering" cards produced by Hasbro Inc. is affecting the ecosystem for the fantasy trading-card game, "eroding the long-term value of the brand," and jeopardizing sales.
During the course of regular trading, shares of the toymaker experienced a decrease of 9.2%, putting the stock on track for its largest percentage drop since October 26, 2020. Hasbro had the lowest performance of any company in the S&P 500 Index on Monday.
The investment recommendation for Hasbro at BofA has been changed to "sell," down from "buy." They said that as the corporation flooded the market with fresh releases, card prices for the game "Magic" were going down. According to the experts, major merchants were cutting back on their orders, game stores were reporting losses due to the popularity of the game, and collectors were attempting to unload their card collections.
The analysts at BofA stated in the note that after speaking with a number of players, collectors, distributors, and local game stores, they had become aware of a growing level of discontent in the community. The primary cause for concern is that Hasbro has been generating an excessive amount of Magic cards, which, while beneficial to Hasbro's most recent financial success, is detrimental to the value of the brand over the long run.
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According to the analysts, "Magic: The Gathering" accounts for approximately 15% of Hasbro's total revenue. During the pandemic, there was a doubling of game sales, which contributed to an increase in card prices on the secondary market. But since Hasbro sought to satisfy that interest by releasing more sets, players have struggled to keep up, according to BofA. This has driven players to revert to a format that allows them to utilize older cards in order to keep up with the game.
"Because of the increasing supply, prices on the secondary market have plummeted, and as a result, distributors, collectors, and local game retailers have all suffered financial losses as a result of Magic." The analysts at BofA stated that, as a result, they anticipate the company will place fewer orders for merchandise in future releases.
They proceeded by saying, "The value of seven of the most recent eight big Magic sets has decreased, while Hasbro continues to reprint its most successful sets, further driving prices down." "Our store investigations have also revealed that a number of national stores are discontinuing the sale of Magic, and those that are still selling it have a large quantity of out-of-date stock."
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