Hasbro 'continues to destroy customer goodwill' and the stock could crash 29% as it dilutes the value of Magic: The Gathering, Bank of America says

Magic: The Gathering
A man holds up a pack of Magic cards at a an event in Las Vegas.YouTube
  • Hasbro stock has 29% downside potential as it continues to dilute the brand value of Magic: The Gathering.

  • That's according to Bank of America, which reiterated its "Underperform" rating on the stock in a Tuesday note.

  • "Within its Wizards segment, Hasbro continues to destroy customer goodwill by trying to over-monetize its brands."

Hasbro continues to dilute the brand value of its popular Magic: The Gathering card game, according to a Tuesday note from Bank of America, which said that the company faces a steep decline in its share price if it continues to "destroy customer goodwill."

The bank reiterated its "Underperform" rating for Hasbro and its $42 price target, which represents potential downside of 29% from current levels. In November, BofA warned that Hasbro was "killing its golden goose" by over-monetizing Magic: The Gathering.

According to BofA, Hasbro continues to over-monetize the brands within its Wizards segment, which includes Magic: The Gathering and Dungeons & Dragons.

"Within its Wizards segment, Hasbro continues to destroy customer goodwill by trying to over-monetize its brands," Bank of America said. The bank said that while it preannounced negative earnings, the stock is still not de-risked "given a host of outstanding issues."

Mainly, Hasbro is attempting to squeeze out as much profit as possible from its Wizards products in the short-term without any thought as to the long-term durability of its brands. And the over monetization is irking customers, according to BofA.

"We remain especially cautious on Hasbro's Wizards segment given its over-monetization of Magic. Wizards recently tried a similar tactic with D&D-proposing changes to its licensing agreement which led to substantial pushback from the community including calls to boycott the D&D movie," BofA explained.

Hasbro wanted to change its 20-year-old open game license for Dungeons & Dragons in a bid to boost revenue ahead of an upcoming movie release based on the game.

The specific changes would have required independent publishers and content creators to report financial data directly to Hasbro and pay significant fees if they generated a certain threshold of revenue.

Hasbro has since dropped its proposed changes to Dungeons & Dragons after receiving a strong amount of backlash from customers, with nearly 70,000 D&D fans signing a petition protesting the proposed licensing change.

The snafu by Hasbro validates BofA's view that management at the toy company remains willing to risk customer loyalty for short-term profit.

"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 [earnings] results but is destroying the long-term value of the brand," Bank of America analyst Jason Haas wrote in November.

The oversupply of Magic cards means "card prices are falling, game stores are losing money, collectors are liquidating, and large retailers are cutting orders," Bank of America explained.

The bank names "weak fan engagement with Hasbro's brands" and "fading appetite for Magic releases" as key downside risks for the stock.

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