A Wealth Creation Journal

Aug 2021 Games Workshop Investment Memo

Investment Action: Do Nothing

Games Workshop (GW) continues to be my largest investment at a 20% portfolio weight. For the 12 months ending May 2021, Games Workshop revenue and net profit reached GBP 353.2m and GBP 122m. This represented year-on-year growth of 31.6% and 71.1% respectively. When I first invested in Games Workshop in 2018, the net profit was GBP 59.6m. The company compounded earnings at a rate of 22% for the last 4 years. And I believe that the company can continue to grow earnings by around 15% per year for the next 5 years due to 1) continued geographic expansion 2) bringing Warhammer IP to a larger audience via animations, video games, novels, comics, and live actions series.

In 2019, I wrote in Games Workshop – An Investment Fantasy:

“Despite paying a hefty multiple of 24x 2020 earnings, I believe we are getting a fantastic bargain because this is a very high-quality franchise with strong growth prospects, under-appreciated IP monetisation potential and strong corporate culture that reinforces its moat with time.”

And GW continues to look like a fantastic bargain today especially as the prospect of Warhammer IP becoming a world-class media franchise is looking promising.

Consider the three categories of Warhammer fan base – Collectors, Gamers, and IP fans. Collectors and Gamers are monetized via miniature sales. The IP fans might purchase Warhammer novels published by Black Library (Games Workshop’s publishing arm) but the revenue generated is not material. Traditionally, the rich characters and narratives of Warhammer are more about creating long-term stickiness and loyalty of the existing fan base rather than recruiting new fans. I believe this is changing in a big way with Games Workshop’s two-pronged IP strategy. In a recent interview, Jon Gillard explained this two-pronged IP strategy:

“Firstly, there is already a lot of great fan content out there. Some of that is being brought in-house to sit alongside other internally generated animation projects. All this content will be aimed squarely at “Warhammer” fans and will provide levels of depth and nuance for this highly “Warhammer” savvy group. Secondly, in licensing, we will develop big content projects in partnership with companies worldwide that we expect to appeal to that broader audience that is less knowledgeable and will need more accessible offerings.”

GW’s recently announced subscription program called Warhammer Plus, which bundles the above-mentioned Warhammer animation, miniatures, and other ancillary contents, is clearly targeting the core Warhammer fans. Warhammer Plus is about increasing the core fan base’s average revenue per user and probably also helps with long-term retention.

GW is collaborating with Big Light Production to turn the Eisenhorn novel into a live-action series that is going to be released on Netflix. This is meant to be accessible and bring Warhammer IP to a large audience. In the same way that the recent adaptation of Witcher into a Netflix series helped to introduce many audiences to the video game of Witcher 3, some of the audience will be eventually converted into miniature-purchasing fans which is where the real money is made.

The two-pronged IP strategy will increase average revenue per existing fan while also introducing Warhammer to a larger audience which can help to lower acquisition cost per fan. GW still has a very long growth runway ahead and can grow earnings at 15% per year with a high degree of certainty. GW is my largest investment because it has the lowest probability of permanent impairment despite the rich headline valuation.

Secular growth of hobby games

It seems increasingly clear that Games Workshop is a beneficiary of the secular growth of the hobby games sector. Hobby Games, which includes board games, trading card games, role-playing games, and miniature games, typically require the players to meet in a physical space and involve physical objects such as cards, miniatures, and boards. This is clearly the opposite of video games where gamers interact in a virtual world. For a long time, many believed that video games are permanently taking time and money away from hobby games.  As such, the revival of hobby games in recent years has taken many industry insiders by surprise. The growth of hobby games remains robust despite the impact of COVID-19. Trading card games, such as Magic and Pokemon, are seeing very impressive revenue growth rates in excess of 20% in 2020. According to ICV2 (a hobby game trade magazine), the US hobby game sector generated USD 2bn of revenue in 2020 which was up 21% versus 2019 and up almost 100% versus 2015. In China, live-action role-playing games are becoming a huge hit with Chinese youth.

Operational Updates

The pandemic has revealed the extent of the fans’ emotional connection with Warhammer because Games Workshop sold more miniatures even as most fans cannot meet to play the tabletop game. It seems to suggest that the collecting and painting aspects of the hobby are much more dominant than I previously expected. The pandemic also revealed the bottlenecks in Games Workshop’s manufacturing and supply chain capabilities. For most of part of the first half of 2021, Games Workshop could not meet the customer demand due to manufacturing and supply chain limitations. However, the company is putting plans to steadily expand manufacturing capacity at the Nottingham site and building warehouses. I expect the manufacturing and supply chain bottleneck to be resolved by 2022.

Games Workshop has three sales channels – third-party trade channels, self-operated retail stores, and online sales. Sales from self-operated retail stores reduced significantly due to COVID-19 restrictions, and only accounted for 20% of total sales in FY 2021 which was down from 34% in FY 2019. The reduction in retail store sales was more than compensated by an increase in online sales as online sales accounted for 25% of total sales in FY 2021 compared with 18.4% in FY 2019. Physical stores are a very important recruitment channel and provide physical spaces for Warhammer fans to play tabletop games. Hence, I expect retail store sales to steadily recover as COVID-10 restrictions ease. While online sales might slightly decline as a percentage of total sales, it would remain important for fans who do not have easy access to offline stores.


  1. Robert Guillam


    First of all thanks for all the write ups on GW. It is a phenomenal performer but not a lot of articles/blogs on the business.

    The launch of Warhammer + and their media efforts seem to be aimed at bringing more fans into buying the models.

    Do you think we will see a time when the non-tabletop parts will be able to stand on it’s own? The Black Library and licensing is a small part of revenue. The IP is very rich but I don’t think they can easily monetise it by bringing it to a broader audience, because its Grimdark and too mature.

    Also, I am not sure how big the “fans of the IP but not table top” pool is, so the opportunities are limited.

    Would love to hear your views.

    Thank you.

    • XC

      I think so and I hope so. Bob Iger said in his biography that one of the main reason that he bought Marvel is that Marvel has so many characters and rich plotlines to develop. I think the same can be said with Warhammer – a IP universe with so many characters and plots. Just think Underhives, blood bowl, necromunda are just IP built on a city / event within Warhammer universe. i would not be surprised if IP is responsible for 30% of total revenue in 5 years time (licensing fees + subscription).

      • Ng Lip Wee

        Oh yes very good point! That’s just 1 city in the IoM. Also noting that they are taking more risks with the IP, compared to the editions before the return of Guilliman, where the timeline is stuck at 41999.

        Licensing it out seems to be the way to go for now, as they can license out the IP to game devs but bear relatively little risk in return.

        Looking forward to more good stuff from Pembridge!

        • XC

          More risk indeed. Thanks!

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