Yowie Group Ltd (ASX:YOW) announced yesterday that it has signed a three-year licensing agreement for YO-KAI WATCH, an Intellectual Property (IP) licensed toy owned by LEVEL-5 abby Inc that is reportedly quite successful in Japan. This follows on from several recent licensing agreements such as Angry Birds, and SpacePOP.

Yowie will gain the right to manufacture and sell a chocolate candy item containing a surprise collectable toy, and a ‘Chocobar’ that is reminiscent of the main YO-KAI WATCH character’s favourite candy.

After a long time researching YO-KAI WATCH I frankly have little idea of the appeal or likely longevity of the brand. Yowie’s announcement provided a number of stats on its popularity – it looks popular – and the ‘breadth’ of brand merchandise related to it includes Disney channel shows, Nintendo games, Android iOS apps, and so on. The whole thing is reminiscent of some brands from my childhood like Pokemon, Digimon, Yu-Gi-Oh.

Beyond that, investors should do their own research to decide if the licensing arrangement is a winner – or perhaps ask your children!

Yowie’s Corporate Plan

It seems to me that management is looking to use a number of licensing agreements to ramp up chocolate manufacturing and boost cash flows and revenues. I assume that as these increase, a growing portion of the funds will be used on Yowie brand building across television shows, movies, books, etc.

This seems a sensible approach as it effectively uses other brands’ IP to boost Yowie’s revenues, which it can use in turn to grow its own business. However, I’m cautious that as more brands enter the children’s chocolate market, they will be competing with the Yowie brand.

The market is big enough for multiple brands, but if Yowie’s main job becomes chocolate producer for other brands, it opens itself up to competition. It’s too early to say whether this is an item of concern, but investors should watch to see how the situation evolves. In the meantime I’d consider this announcement to be generally positive.

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Motley Fool contributor Sean O'Neill owns shares of Yowie Group Ltd.. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.