There’s some arm wrestling going on between the two largest toy makers in the U.S. Just last week beleaguered Mattel supposedly rejected a takeover offer from rival Hasbro. The performance of the two companies (and their stocks) could not be more different.

Hasbro is successfully navigating the Toys “R” Us October bankruptcy. Year to date Hasbro sales are up 7% and profits up 4%. By contrast, Mattel complained that the Toys “R” Us bankruptcy weighed on sales. In the second quarter sales shrunk 10% and profits swung to a $600 million loss.

The stocks of the two reflect those trends. Hasbro is up 20% year to date and was up as much as 45% this summer. Mattel, whose stock leaped $6 on news of the possible Hasbro acquisition, is still down 36% year to date. Before the deal rumor, it was down a shocking 55%.

Talk about a broken toy.

How is it possible that two companies operating in the same space can perform so differently? Each one counts the same massive retailers as its biggest customers; Walmart, Target and of course, Toys “R” Us.

Each one grapples with the same issue hindering the growth of all toy makers; Electronic toys and the popularity of the internet are sucking up children’s playtime. While traditional outdoor gear remains a popular category, the old-fashioned doll has lost its spot under the Christmas tree.

The wish list for many tots this holiday season includes many blinking, shrieking gadgets. Some, like the game DropMix, combines online play with hands-on toys. In this game, children place cards containing music mixes onto an electronic board. The board then connects wirelessly to the internet so that kids can play and share their “mix tapes” with friends.

The demise of Mattel can be traced to its 2014 loss of a Disney license deal. Frozen, the wildly popular Disney animated film was released in November 2013, and Mattel had enjoyed huge profits from its Princess Elsa dolls, and Frozen themed toys.

At that time, Mattel’s then spokesperson Alex Clark attempted to play down the loss, suggesting that Frozen mania would quiet down after next Christmas.

“We can expect the popularity arc to apex between now and the next holiday season,” he said.

He could not have been more wrong. The license that Mattel lost was not just for the frozen movie but applied to all Disney princesses. The loss of the deal was a huge blow to Mattel, who up until then was the King of Dolls.

Mattel had been riding on the coattails of Barbie for years. The iconic high-heeled doll was once the most in-demand toy but has seen its sales decline every year since 2011. Mattel’s purchase of the American Doll brand provided a boost to sales for a bit, but that brand has since fizzled out.

Hand it to Hasbro

Hasbro, on the other hand, has all the toys the cool kids want. It’s My Little Pony Magic Twilight Sparkle battery operated horse, and the above noted DropMix card game are both making the cut on Santa’s list this season. 

It’s Nerf and Transformers franchise balance the company’s exposure to girls’ themed toys, and of course, the Disney license continues to deliver fairytale numbers as an extension of the Frozen movie, Olaf, hits theaters after Thanksgiving.

Hasbro also has the license to the Star Wars franchise, which promises to be yet another line of hot toys this season with the release of Star Wars Episode 8. Hasbro’s success seems to be grounded in its ability to land profitable licensing deals which allow it to pivot quickly onto the hot new toy. Instead of developing these new toys in-house, it capitalizes on the imaginations of these massive media kings.

I’m surprised that Hasbro has an interest in Mattel. Certainly, it would become a behemoth in the toy aisle, giving it more clout when negotiating prices with retailers. Any significant merger also renders some cost savings as companies combine back office and administrative functions.

But Mattel’s numbers are horrid. In the face of declining sales, inventory is up and the length of time its customers are waiting to pay is increasing. Cash generated from operations was negative $740 million, more than double the prior year’s level.

At the same time, it’s shocking that Mattel won’t entertain a bid from Hasbro. I suppose its new CEO Margo Georgiadis, who joined in February 2017 and its new CFO, both in place for less than a month, are optimistic they can turn the company around.

Ms. Georgiadis hails from Google, a company unaccustomed to failure in most of its ventures. Let’s hope that optimism and Google magic can be spread generously across the shelves of Mattel to bring its toys to life.