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An oversupply of Hasbro Inc.’s “Magic: The Gathering” cards is hurting the ecosystem for the fantasy trading-card game, “destroying the long-term value of the brand” and threatening sales, BofA analysts said in downgrading the stock on Monday.
Shares of the toymaker slid 9.2% during regular trading, putting the stock on pace for its biggest percentage decline since Oct. 26, 2020. Hasbro
HAS,
was Monday’s worst performer in the S&P 500 Index.
Analysts at BofA downgraded Hasbro to the equivalent of “sell” from “buy.” They said card prices for “Magic” were falling after the company flooded the market with new releases. Big retailers were pulling back on orders, game stores were losing money on the game, and collectors were trying to offload their cards, the analysts said.
“We’ve spoken with several players, collectors, distributors and local games stores and have become aware of growing frustration,” BofA analysts said in the note. “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.”
“Magic: The Gathering” makes up around 15% of Hasbro’s sales, the analysts said. Sales of the game doubled over the pandemic, driving up card prices on the secondary market. But after Hasbro tried to meet that enthusiasm with more set releases, players have struggled to keep up, BofA said, leading them to revert to a format that allows them to use older cards.
“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 BofA analysts said.
“Seven of the last eight major Magic releases have declined in value, and Hasbro continues to reprint its most successful sets, driving prices down further,” they continued. “Our store checks have also found that many national retailers are cutting Magic, and those that continue to carry it are heavy with aged inventory.”
The analysts said sales growth for the game has been spurred by more frequent set releases. Audience growth, they said, hasn’t kept up.
Out of 10 analysts tracked by FactSet, seven have a buy rating on Hasbro. Three have a hold rating.
Hasbro stock has fallen 44% so far this year. The S&P 500 Index
SPX,
is down 14% over that time.
