Mattel Earnings: Investments Weigh on Profit Progress but Support Long-Term Brand Relevance

Key Morningstar Metrics for Mattel

• Fair Value Estimate: $25.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

What We Thought of Mattel’s Earnings

Mattel’s MAT fourth quarter saw 7% sales growth, aided by the vehicle (up 20%) and challenger categories (up 16%). Still, the holiday season was tough, resulting in promotions that added profit pressure on top of tariffs, leading to an adjusted operating margin contraction of 70 basis points to 9.1%.

Why it matters: Despite having some of the most relevant brands in the industry, continued investment in innovation is expected to bound margin expansion in 2026. Indeed, the implied adjusted operating margin of 10.0%-11.0% indicates a decline from the 11.6% mark in 2025.

• In 2026, costs of $110 million are slated for investments in technology and capabilities in areas that Mattel has low exposure to, like digital games and direct-to-consumer. In addition, $40 million is earmarked for marketing, another effort to elevate the brand’s visibility.
• We see such efforts as table stakes in staying relevant with consumers and expect such spending to be perpetual. Our forecast includes higher investment, limiting the average operating margin to 13.5% over the next decade, below the mid-teen rate captured in the past.

The bottom line: We plan to lower our $25 fair value estimate for narrow-moat Mattel by a mid-single-digit rate for reduced profitability in 2026. We view shares as attractive after a 25%-plus drop post print and think operating margins would have to stay below 10% to reach the market price.

• We think investors are frustrated that sales remain stalled, with Mattel calling for 3%-6% sales growth in 2026, including the $150 million added to its top line from full ownership of Mattel163.

Between the lines: Mattel is taking control of Mattel163, its joint venture with NetEase, which is expected to launch two digital games annually. Half of the $159 million purchase price for the outstanding share will be financed with cash from the joint venture, with immediate accretion.