HAS: Sharpening Our Pencils on Console Gaming Launches; Cautious on Exodus, Warlock More Compelling

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HAS: Sharpening Our Pencils on Console Gaming Launches; Cautious on Exodus, Warlock More Compelling

Hasbro, Inc. Equity Research

Pivot into Console Gaming No Layup

We see early results from HAS's foray into AAA console gaming as key to the stock as 1) the company

looks for growth avenues beyond the successful tabletop gaming segment, 2) the conventional toy

business continues to falter, and 3) bulls look to provide support for a non-toy earnings multiple. The

buildout began in earnest in 2019 with the formation of Archetype Entertainment in Austin and the

acquisition of what ultimately became Invoke Studios in Montreal later that year. The company also

established Atomic Arcade in 2021 in Raleigh, NC, but shuttered the effort earlier this year.

The company continues to ramp development spend across these studios and capitalized ~$135m

in 2025 (or ~15% of operating cash flow), with total spend now in excess of $400m capitalized to the

company's B/S that will be depreciated as games are released (Exhibit 1). Much of this cost is related

to the development of its first two games, Exodus and Warlock, which are both being released in 2027,

but the company is also building a pipeline (targeting 1-2 games/year) for the years beyond.

We can certainly see the logic in this move for HAS given:

1. Sizable Incremental TAM: The video game market estimated at just over $170bn globally last

year and eclipsing the global market for conventional toys at just over $100bn. ~40% ($75bn) of

this looks addressable for HAS after the exclusion of mobile gaming (Exhibit 2).

2. Better Growth than Conventional Toys: While growth in the overall video game market does

seem to have decelerated somewhat from ~DD% historically to ~5% annually over the past 3Y,