If you don’t have children, the name Paw Patrol probably doesn’t mean a lot to you.
If you do have kids, the wildly successful series of toys, shows and video games about a boy and five rescue dogs might just be an ubiquitous presence in your life.
And if you invested in Spin Master, the Toronto-based company that created and own the franchise, Paw Patrol is money in the bank.
This past week, Spin Master released its first quarter 2016 earnings, exceeding analyst expectations with revenues of US$161.7 million, 51.9 per cent higher than the same time last year. It also revised its sales growth guidance from “high-single-digits” to the “mid-teens” range, mainly driven by Paw Patrol and the acquisition of American board game maker Cardinal Industries.
On Monday, its shares hit a new all-time high of $28.88 before closing at $28.26. They are now up more than 50% since its IPO last July.
“From a day to day perspective the company is exactly the same (as before going public),” said co-CEO Ronnen Harary. “We operate the same, we have the same long term goals in terms of fusing innovation into our brand, building our brands, expanding our global footprint, building up our entertainment slate and making strategic acquisitions.”
Spin Master was started in 1994 by Harary and two friends who as recent university graduates made nylon stocking-covered heads of sawdust topped with grass seeds which grew to look like hair, and sold them on the street in downtown Toronto.
The grass-covered heads were called Earth Buddy, developed in 1994 by Harary, Anton Rabie and Ben Varadi with a total investment of about $10,000.
Just over 20 years later, Spin Master has grown to be one of the largest toy companies in the world.
As simple as Earth Buddy was, it found shelf space at Toys ‘R’ Us and by the end of 1995 it had sold 1.5 million units.
Although Earth Buddy served as Spin Master’s launch pad, the company really took off in 1998 when it bought the rights to Air Hogs, a remote-controlled toy plane that flies using compressed air.
“It started from one product that all the other toy companies turned down,” said Harary.
Between 2002 and 2007, the company expanded its international footprint by opening offices across Europe.
In 2008, Spin Master opened its entertainment division to develop shows and video games, ideally creating three streams of revenue to tap parents’ wallets.
The team also realized there was more profit to be made in creating original characters and stories than buying someone else’s ideas.
“We noticed early on is that if you create your own (intellectual property) then you can actually build a franchise. If you build a franchise then you’re building what we believe to be a greater amount of equity,” said Harary.
After developing relationships with Nickelodeon and the Cartoon Network, Spin Master approached Bob the Builder creator Keith Chapman to invent a franchise and in 2013 unleashed the Paw Patrol animated series.
I equate the toy business as similar to fashion for kids in that they’re always looking for you to deliver an innovation
It turns out kids love it. Today the show is distributed in 160 countries and has a series of video games and a lineup of toys that are flying off the shelves. Paw Patrol even has a magazine in the U.K. and RBC Capital Markets analyst Sabahat Khan says he wouldn’t be surprised by a feature film down the line.
“All paws on deck,” wrote Khan in a note to clients. “The continued release of new content is expected to support the momentum of this franchise as the company looks to develop it into an evergreen property.”
Although the company did not disclose how much Paw Patrol’s added to its gross product sales, National Bank Financial analyst Adam Shine noted that the franchise contributed 25 per cent, implying sales of over US$245 million last year.
Khan says Paw Patrol’s contribution can be seen in the sales growth of the “Pre-School and Girls” category, which increased 80.9 per cent year over year in the quarter. For the full year, this category brought in sales of US$325.7 million in 2015 and a projected US$391.7 million by the end of 2016.
In February, Spin Master acquired Etch A Sketch and Doodle Sketch, which Khan says is “an opportunity to bring innovation to these iconic brands.”
Today, the company is the fifth-largest producer by sales in the U.S. toy industry and a top-10 player globally. Spin Master operates out of 14 offices in North America, Europe, and Asia, with sales in over 60 countries.
Harary says the next frontier will be international — particularly in Asia where the franchise has not yet been launched.
“I equate the toy business as similar to fashion for kids in that they’re always looking for you to deliver an innovation or something new that hasn’t been seen before,” he said.
“It’s part art, part science and you’re looking for that magical moment where the kids connect with the toy in a special way.”