Hasbro is 'killing its golden goose' by destroying the long-term value of Magic: The Gathering, BofA says in scathing downgrade call

• Hasbro stock received a double downgrade from Bank of America on Monday due to its management of the popular Magic: The Gathering card game.
• The bank said Hasbro is overprinting Magic cards which is destroying its long-term value.
• "Card prices are falling, game stores are losing money, collectors are liquidating and large retailers are cutting orders," BofA said.

Hasbro stock has more than 33% downside as it mismanages one of its top franchises, Magic: The Gathering card game.

That's according to Bank of America, which issued a double downgrade on the stock to "Underperform" and lowered its price target to $42 from $73.

BofA's downgrade is driven by Hasbro's overprinting of Magic cards, which is "destroying its long-term value" and "killing its golden goose."

"We've spoken with several players, collectors, distributors and local games stores and have become aware of growing frustration. The primary concern is that Hasbro has been overproducing Magic cards which has propped up Hasbro's recent [earnings] results but is destroying the long-term value of the brand," Bank of America analyst Jason Haas wrote.

The oversupply of Magic cards means "card prices are falling, game stores are losing money, collectors are liquidating, and large retailers are cutting orders," Bank of America explained.

It's a precarious position for Hasbro to be in as it struggles to find the right balance between maximizing profits from its Magic franchise without diluting the brand and its long-term value through the overprinting of cards.

Bank of America said the card game generates 15% of Hasbro's revenue and 35% of its EBITDA, so a further degradation of the franchise could have a material impact on the company's earnings results and ultimately its stock price.

During the pandemic, the franchise boomed as Magic sales nearly doubled and card prices on the secondary market skyrocketed. In a bid to keep up with growth, Hasbro had more frequent card set release with more product in each release.

"Players can't keep up" as "wallet fatigue is real," BofA said. 

"We're also concerned by Hasbro's decision to release a Magic 30th Anniversary set including four booster packs for $999 (vs. a typical set pack is $5). Not only is the price excessively high, but the set also includes Reserved List cards which Hasbro had promised to never reprint," Haas wrote. "This has created panic among collectors and we're seeing collections being liquidated now that the scarcity value of Magic is in question."

The debacle Hasbro is facing with its overprinting of Magic: The Gathering cards comes back to the age-old economic principle of supply vs. demand. Upending the balance in the name of short-term profits is clearly having an impact on the company and its outlook. Hasbro stock is down 44% year-to-date.