Lego, the Danish toy company famous for its colorful plastic bricks, expects to diversify its portfolio of entertainment offerings, targeting the metaverse.
The company is gearing up to introduce a virtual world in partnership with Epic Games, the game engine company, to continue increasing its market share and growth streak by entering new digital markets.
Lego’s strong financial performance
Lego had a strong year in 2022, outpacing rivals, growing market share and posting strong financial results. According to a report by the Financial Times, the company’s revenues increased by 17% to DKr 65 billion ($9.3 billion), while its net profits increased by 4% to DKr 13.8 billion. ($2 billion), despite challenges posed by rising raw materials, energy and transportation costs.
Niels Christiansen, the CEO of Lego, attributed the company’s success to its investments in digital play experiences, e-commerce and sustainable packaging. Christiansen told the Financial Times that Lego is “doing a lot on the digital side” and increasing its investments in the space.
Christiansen said Lego aims to create a seamless experience for consumers across the physical and digital worlds. He added:
We are very good at immersing consumers in the Lego universe in stores. We are working very hard to create this feeling of entering the Lego brand universe also digitally.
The business has enjoyed success throughout the Covid-19 pandemic, with sales and net profit both increasing by two-thirds in the past three years.
Meanwhile, rivals such as Mattel and Hasbro from the United States have struggled. In 2022, Mattel had revenue of $5.4 billion and net profit of $400 million, while Hasbro had sales of $5.9 billion and net profit of just $200 million.
Lego’s growth is expected to normalize this year, with revenue expected to grow in the mid-single digits. However, Christiansen said the company still expects to grow faster than the entire toy industry.
He said the company will continue to invest in its momentum, adding that historically the toy industry has not been too cyclical.
Diversification in the Metaverse
Lego’s strategy is to continue its growth by offering its products in digital markets, helping users to recognize the brand even online. To achieve this, the company is collaborating with Epic Games to create a metaverse initiative that will allow it to penetrate new digital markets.
The partnership with Epic Games will clarify Lego’s future actions to establish a presence in virtual worlds and target users in digital markets. While other companies have moved away from metaverse initiatives, Lego is focused on building digital spaces for kids.
The company invested $2 billion in Epic Games in partnership with Sony in April 2021 with the aim of creating its own metaverse platform to bring kids closer to the brand in safe and secure virtual spaces.
Since then, Lego has increased hiring to develop digital experiences in-house and plans to triple the number of software engineers to adopt a physical and digital approach.
Christiansen believes entering the metaverse is the next logical step for the company as it seeks to stay ahead of its competitors.