Paw Patrol movie, digital games put Spin Master on track for return to growth

TORONTO — Spin Master executives said Thursday that the company behind "Paw Patrol" and several other globally successful toy and entertainment franchises aims to be a global leader in digital games for children.

Co-founder Ronnen Harary, who had been Spin Master's co-chief executive until relinquishing the role in January, said the Toca Life digital game platform has more than 30 million monthly active users.

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In addition, the Sago Mini digital games for preschool children age 2 to 5 years, had 255,000 subscribers, compared with 150,000 subscribers last year, Harary said.

Spin Master aims for Sago Mini to become the No. 1. preschool brand of digital games over time. Spin Master's Toca Life World platform, is already a strong competitor to Minecraft and Roblox, he said

Toca Boca, one of the Toca Life games, is about creating characters, building homes or fancy restaurants and then sharing videos of their creation on the TikTok social media platform.

"And that gives us this differentiation, and a different tone and tenor versus some of the other games.," Harary said.

Mark Segal, Spin Master's chief financial officer, said the company's diversification efforts over the past year are bearing fruit.

The upcoming Paw Patrol movie, to be distributed by Paramount starting in August, will drive a number of revenue streams in the second half of 2021 and into 2022.

"Now those revenue streams are going to be primarily toys," Segal said. "(We) will start shipping the toy line in late Q2, we'll ship it in Q3, we'll ship it in Q4."

"We'll also generate licensing and merchandising (revenue), all the bedding, shoes, apparel … will start flowing through in Q3 and Q4 and into 2022."

The company's latest outlook projects sales growth in its toy business line to be in the high single digits for the year, compared with a March 3 estimate of low- to mid-single-digit growth.

Shares in Spin Master Corp. were initially up more than 10 per cent early Thursday and hit an intraday high of C$47.78 on the Toronto Stock Exchange but gave up much of the increase later.

The stock closed at C$44.53, up $2.02 or 4.75 per cent from Wednesday's close and up from a multi-year low of C$10 per share at the close on March 18, 2020.

Spin Master, which reports in U.S. dollars, said after markets closed Wednesday that its net income was equal to three cents per diluted share for the quarter ended March 31. That compared with a year-earlier loss of US$26.7 million or 26 cents per diluted share.

On an adjusted basis, Spin Master says it earned eight cents per share for its most recent quarter compared with an adjusted loss 46 cents per share a year ago.

Total revenue rose to US$316.6 million compared with US$227.3 million of revenue in the first quarter of 2020, which included the beginning of the COVID-19 pandemic.

Excluding digital games and entertainment revenue, Spin Master's net product sales rose 24.4 per cent to $255.6 million, driven by the preschool and girls category and outdoor toys.

Digital games accounted for $34.1 million of revenue, up from $6.9 million a year ago. Entertainment and licensing revenue was $26.9 million, up from $15 million last year.

This report by The Canadian Press was first published May 6, 2021.

Companies in this story: (TSX:TOY)

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