Disney+ will fuel Hasbro gains long after the pandemic is over as Star Wars toy sales jump

• Sales of Star Wars toys rose 70% year over year for Hasbro.
• The company pointed to "The Mandalorian" from Disney+ as one driver of these sales.
• Hasbro holds the master toy license for Marvel and Star Wars, two franchises that have big futures on Disney's streaming service.

Hasbro is proving that it doesn't need movie theaters to sell Star Wars toys.

While the Rhode Island-based company saw sales of its licensed content from entertainment studios fall 12% to $1.08 billion for the full year, its sales of Star Wars grew by 70% over that period.

Last year marked the first time since 2014 that Disney did not release a Star Wars film in theaters, but sales of Grogu — the child formerly known as Baby Yoda — and of toy lightsabers helped fuel growth for the toy franchise.

Movie theaters have been deprived of content from Hollywood because of the pandemic, but Disney+ is making up for that loss with shows like "The Mandalorian."

"What's been great for our business is that streaming content is now being enjoyed by so many people, it has really hit a tipping point," CEO Brian Goldner said Monday on CNBC's "Squawk on the Street." "And that tipping point means that you have tens of millions of people watching a piece of content over a given early period of time that allows us to 'eventize.'"

Earlier Monday, Hasbro said fourth-quarter earnings fell to $105.2 million, or 76 cents per share, from $267.3, or $2.01 per share, a year earlier. But after excluding items, Hasbro earned $1.27 per share, which was better than the $1.14 per share analysts were expecting.

Fourth-quarter revenue expanded by 21% to to $1.72 billion during the quarter to top a Refinitiv estimate of $1.69 billion, aided by strong sales of games such as Jenga, Scrabble and Dungeons & Dragons.

Hasbro shares initially rose on the news, but shares were down about 2.6% earlier afternoon as investors worried about investments the company is making in new video content and advertising.

Keeping Grogu in stock

The company is also facing higher costs from supply issues, which include delays from port congestion. Hasbro has had trouble keeping some items in stock, including those featuring Grogu.

When the character was introduced in 2019, Hasbro was unable to take full advantage of its popularity. Showrunners Jon Favreau and Dave Filoni were so keen not to spoil Grogu's appearance in "The Mandalorian" that they didn't share any reference photos with toymakers.

Hasbro, along with other toy and retail manufacturers, had to scramble to meet consumer demand for goods featuring the little green alien. For season two, which launched at the end of 2020, Hasbro was able to tease new products and include Grogu goods in its holiday releases.

Disney+ also has more than just "The Mandalorian." Over the next few years, the streaming service will debut at least nine more Star Wars shows. These include series featuring popular characters such as Ahsoka Tano, Lando Calrissian, Obi-Wan Kenobi and Boba Fett.

These shows will keep Star Wars fans and Hasbro toymakers occupied until 2023 when Patty Jenkins' "Rogue Squadron" is slated to hit theaters.

Outside of the Star Wars universe, Disney+ also has nearly a dozen Marvel series in the works. Already, "WandaVision" is streaming on the service and "The Falcon and the Winter Soldier" and "Loki" are set to launch before midyear.

"We see the rapid subscription growth, globalization of Disney+ and the access to Disney content for new audiences as a key catalyst driving consumer product demand," said Stephanie Wissink, managing director at Jefferies. "Hasbro is one of Disney's largest strategic partners in enabling fans of all ages to engage in the brands in a physical goods form."

When theaters reopen

Hasbro extended its Star Wars and Marvel partnerships with Disney in early 2020. It's unclear how long the new contract is set for, but the last time the toymaker renegotiated its master toy licenses for those franchises was in 2013.

Hasbro has long benefited from its relationship with Disney. In 2019, revenue from Hasbro's partner brands rose 24% to $1.22 billion. The company pointed to strong sales of "Frozen 2," "Avengers," "Spider-Man" and "Star Wars" lines for the increase.

The toy company's licensed content will likely rebound in 2021, as coronavirus vaccines are rolled out to more Americans and moviegoers can return to theaters in larger numbers. Hasbro didn't provide a specific earnings forecast, however.

Disney's Marvel Studios has four films set for release this year: "Black Widow," "Shang-Chi and the Legend of the Ten Rings," "Eternals" and a third "Spider-Man" film made in partnership with Sony.

"The plans to have 5 or so TV shows for Marvel content on Disney+ this year combined with expected movie releases creates a year round programming opportunity for Hasbro with a revolving lineup of product offerings," said Eric Handler, managing director of media and entertainment equity research at MKM Partners.

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