Given all the downs of the year, we decided to profile a Canadian business success story that has nothing to do with vaccines, hand sanitizer or on-line conference call apps. This business has persevered through adversity, much success, missed opportunity, growing pains and global expansion to establish itself within an industry that is well over 100 years old and typically not too welcoming to new entrants. As the holiday season is upon us, this profile seemed even more fitting as most of us will see this company’s products under our trees or with the children in our lives more than once over the holidays.
You have likely heard of Air Hogs, PAW Patrol, Bakugan and Hatchimals. If not, consult anyone under 15 in your community. These are all products of Canadian toy company Spin Master Corp (TSX:TOY). Spin Master developed all these toys and the related television shows and movies that go along with them. Spin Master is a Canadian public company, having issued its subordinate voting shares on the TSX back in 2015.
Best Known for the Following Toys / Brands:
Spin Master History
Started in 1994 in Toronto by childhood friends, Spin Master has grown to be a worldwide company that is publicly listed and distributes toys in more than 100 markets. The Company has won countless awards over the years (too many to list).
The Company’s 2016 prospectus suggests Spin Master’s history can be broken down into five key phases: (1) Start-Up Growth; (2) Building the Base; (3) Bakugan Growth; (4) Restructuring and Refocusing; and (5) Diversified Growth.
Start-Up Growth (1994-2001)
They get their start with Earth Buddy, a simple toy resembling a chia-pet. Which they followed up with Devil Sticks – a three stick juggling like game.
In 1996, two British inventors present an innovative toy airplane to the Company’s founders and the Air Hogs brand is launched with the first product the “Air Shark”. Its success is attributed to its affordability, its technological innovation and its ease of use.
Spin Master’s team develops a reputation of building sincere relationships and true collaboration with its partners, including inventors, designers, manufacturers, distributors and sales partners.
In 2001, Spin Master exceeded $80 million in Gross Product Sales and the Company established a foundation for future growth.
Sourced from Spin Master
Building the Base (2002-2007)
The business continued to introduce new innovative products, including Catch-a-Bubble, Aqua Doodle & Moon Sand as it expanded internationally. The Air Hog’s brand matured and filled out its portfolio with helicopters, wall climbing cars and even a flying saucer. As well, the Company got its start with entertainment franchises, when it was awarded the master toy license for The Wiggles.
Acquisitions
In 2007, Spin Master’s Gross Product Sales were approximately $485 million
Bakugan Growth (2008-2010)
Spin Master launched Bakugan in late 2007. The product was a collaboration with Sega Toys but initiated by Spin Master. Bakugan is a card game that involves small toy balls that activate to become characters for the game. An animated television show was also developed to support the game and toy sales. At its peak, in 2009, Bakugan recorded $387 million in sales.
In 2010, Spin Master’s Gross Product Sales exceeded $900 million.
Restructuring and Refocusing (2011-2012)
The surge in sales of Bakugan and related products left the Company scrambling to manage the sharp growth of Bakugan and the natural decline that followed. When sales levels dropped, the cost structure of the company was out of line and a operational restructuring was needed to right size the business. Management took the opportunity to recruit expertise, establish business policies and processes to increase accountability in order to better manage the business and achieve sustainable growth. Through the restructuring an emphasis was placed on involving entertainment content and technology with its products, which included animation, robots and other high-tech toys.
Acquisitions
In 2012, Spin Master generated approximately $481 million in Gross Product Sales.
Diversified Growth (2013-Present)
Spin Master resumed its business growth in this phase with a renewed focus on diversification and financial discipline. The business was broadened organically and through acquisitions. The acquisitions of EtchASketch and Meccano and the launch of Zoomer, a robotic dinosaur, were key additions for the Company. The entertainment production division found its stride with the launch of Paw Patrol and Charmers.
Acquisitions
In 2019, Spin Master generated approximately $1.7 billion in Gross Product Sales retaining its position as the 5th largest toy company in the US market and in the top 10 globally.
While 2020 was expected to be a down year for Spin Master and the global toy industry, the impacts of the pandemic driven “lock-downs” on society has increased demand for puzzles, board games and toys dramatically. Many manufacturers are struggling to keep up and Spin Master has seen its November sales increase 250% over last year. December, the typical biggest month for retail sales, is expected to be up even more!
For more on Spin Mater’s history check out Spin Masters 20th anniversary YouTube video - https://www.youtube.com/watch?v=ysOZvW_LuDw
Stock Performance
Other than a short decline just after its IPO, Spin Master (TOY:TSE) had a growth rate of 52.5% annually from 2015 until March 2018. It was then that Toys-R-Us entered bankruptcy protection and Spin Master’s revenue growth disappeared. Its pace of new toy launches and innovation was too much to maintain in the long term. The stock then delivered a slow decline of 46.0% from its March 2018 high until its pre-pandemic price of $29.31 on March 4, 2020.
The early days of the pandemic was not kind to TOY:TSE, as its share price lost 2/3rds of its value – touching $10 per share on March 18, 2020. Q1-2020 was its first recorded operating income loss since its IPO. However, since then, Spin Master has recovered back to where it was just before the pandemic and appears to have matured into a stable, cash flow generating company – pandemic disruption aside.
What Is Next for Spin Master?
The business model has transformed over the past 15 years from mind blowing growth fueled by innovation, risk taking and pushing the limits of the entire industry into a M&A company that funds its buys with the cash flow and the balance sheet of the legacy business. The latter being much less exciting for shareholders than the uber-growth model but so is the life of a mature toy company. There is nothing wrong with being a billion-dollar revenue company that spits out cash and who knows perhaps there is a new toy innovation or industry busting idea just around the corner for Spin Master!
Spin Master is a true Canadian success story that has benefitted from the entrepreneurial spirit of its founders, shrewd management, hard work, great fortune as well as innovation and a freedom to push the boundaries of an often stoic industry to find a seat as a global leader in the sector. With the recent announcement of the senior management succession from co-founders Ronnen Harary and Anton Rabie to a new former SC Johnson executive, Max Rangel, the business is starting afresh with new challenges and new opportunities, no doubt.
