TORONTO — Spin Master Corp. is headed into the holiday season with some work to do to improve its digital games business, but plenty of promise coming from its Ms. Rachel and Melissa & Doug toys.
Chief executive Max Rangel admitted the company has recently been "disappointed" in its performance in the digital realm.
He attributed the underperformance to lower in-app purchases within Toca Boca World, a game the company runs allowing players to build digital worlds and characters.
"We believe that free content in competitive products has given players less reason to spend and lower in game purchases are driving revenue decline," Rangel said on a Thursday call with analysts.
The behaviour pushed Spin Master to record a 15 per cent drop in its third-quarter net income, bringing the company's profit to US$140.1 million.
Its digital games revenue for the period ended Sept. 30 was down by 16.8 per cent from last year to US$37.7 million.
The decrease marked the third consecutive quarter of revenue decline and the largest fall Spin Master has seen in the last two years, said Martin Landry, managing director at Stifel.
He pointed out that it also came as the company's management announced "another delay plaguing this division" — the release of its forthcoming Unicorn Academy game was being pushed back to 2026.
The combination of news caused Landry to conclude that the "digital games segment continues to perform below expectations."
But Rangel is confident Spin Master can reverse the trend in the fourth quarter, when kids will have more time to play online games during the holiday season.
He's already seeing some encouraging signs of a turnaround.
"Those consumers that are spending are spending at a slightly higher level than last year," he said.
"We remain confident that we will get Toca Boca World back on track."
In the meantime, he said Spin Master, which makes toys under several brands including Paw Patrol, Vida the Vet and Bakugan, has plenty of potential in other areas.
For example, Ms. Rachel has proved to be a popular property for the company. Spin Master makes toys based on the American YouTuber's educational content for preschoolers and babies.
Rangel, who called Ms. Rachel products an "instant sensation," said he's heard from Walmart that the line was the retailer's most successful toy presale.
"The future looks really bright for Ms. Rachel in 2025," he said.
The line marks the first collaboration between Spin Master and Melissa & Doug, a massive U.S. brand of wooden toys Spin Master acquired for US$950 million.
Melissa & Doug has been driving a key portion of Spin Master's revenue up since the acquisition.
Toy revenue increased by US$209.4 million, or 34.8 per cent, to US$810.9 million in the last quarter, while Melissa & Doug's revenue alone reached $155 million.
For the full year, Spin Master expects Melissa & Doug's revenue to be between US$370 million to US$375 million.
"This is the first year we actually have owned the company in Q4. We want to be a little bit prudent and cautious," said chief executive Mark Segal on the same call as Rangel.
"But we'd love to beat our numbers, if we can."
This report by The Canadian Press was first published Oct. 31, 2024.
Companies in this story: (TSX:TOY)
Tara Deschamps, The Canadian Press