Nexo Knights and LEGO Dimensions to Sustain Growth Throughout 2016

2015 was a big year for LEGO Group. Revenues increased by 25% to DKK35.8 billion, whilst net profit reached DKK9.2 billion, constituting a 31% increase on 2014. A strong US dollar contributed to these results by increasing US revenues in terms of Danish kroner, but the majority of growth was organic, with licensed Star Wars products and new product lines like LEGO Dimensions driving growth. The company is looking to maintain momentum in 2016. With the launch of the Nexo Knights product line at the beginning of the year and the full-year availability of LEGO Dimensions, the company is in a position to see another year of strong growth.

2015 highlights

In 2015, LEGO Group reported strong growth across most of its product lines and subbrands, including Ninjago and LEGO Elves. However, Star Wars and LEGO Dimensions were the biggest growth drivers. The release of Star Wars Episode VII in December 2015 provided a significant revenue boost to most of the world’s biggest toy makers, as Star Wars-licensed products took over store shelves the world over. LEGO Star Wars products comprised a significant part of the company’s product portfolio and included hits like the Millennium Falcon that were among the most sought after in the run up to the film release.

The launch of LEGO Dimensions in September 2015 provided another significant source of revenue over the holiday season. Toys-to-life have grown in popularity since the launch of Skylanders in 2011, and LEGO Dimensions has brought a unique product offer to the fast-growing category. The key differentiating factor for LEGO Dimensions is the real world playability of its toys-to-life as they are compatible with regular LEGO pieces, whereas all other contemporary toys-to-life products are simple figurines.

Outlook for 2016

The release of Rogue One: A Star Wars Story, scheduled for December 2016, will ensure that sales of LEGO Star Wars will remain a significant part of the revenue stream for LEGO Group. However, improving on the stellar 2015 results in this product line will be difficult. Instead, growth will likely be driven by LEGO Dimensions, as it enters its first year of full-year availability in 2016. But, revenue growth in LEGO Dimensions could be undermined if another major player enters the burgeoning toys-to-life category, which is currently occupied by only four major competitors.

Therefore, the launch of NEXO Knights is going to be the biggest factor in determining revenue growth in 2016. The new product line blends virtual and physical game play that has growing appeal among digital natives, and is supported by an extensive media campaign that includes a cartoon series.

Long-term prospects

LEGO Group has built successful product lines based on popular entertainment franchises, and this is key to success in an environment permeated with technology and near universal access to media. This has made licensed products like LEGO Star Wars increasingly important. At the same time, it has pushed more toy makers to develop proprietary entertainment media properties. The success of The LEGO Movie and cartoon series like Spin Master’s Paw Patrol served as a catalyst for this trend. For LEGO Group, this means that long-term success is based on developing entertainment ecosystems that span films, cartoons, and video games, as well as toys, around its product lines. So, the company’s prospects beyond 2016 rest largely on the success of Ninjago and NEXO Knights and The LEGO Movie sequel (scheduled for release in 2018).