Games Workshop: It’s Hammer Time

Games Workshop (UK: GAW) is in the business of designing and selling miniature models to be used in tabletop games set in propietary fantasy worlds. The company was founded as a single shop in Nottingham in the 1970s and started designing its own propietary games in the 1980s. Its most successful product is a game called Warhammer 40k, which features such characters as Space Marines doing battle in a fantasy sci-fi setting. The models, rulebooks and accessories are sold  through self-operated retail stores globally and through the independent trade, while its former mail order business has been transformed into an online model featuring several retail websites.


A unit of Space Marines from the company’s Warhammer 40k game as featured on its website.

Since I used to play one of their games myself in my teenage years, I have known of the company’s existence for well over 2 decades and have looked into it as a potential investment on at least two occassions. In both cases I decided not to invest in the company because of, what appeared to me as, a lack of reliable growth prospects, as well as the company’s historically cyclical performance.

The company’s games attract a crowd consisting of mostly young males and are characterized by a strong sense of community. If a Warhammer fan were to meet a stranger playing the same game it is likely that this shared hobby creates an instant bond. The fact that its players are so loyal to the game and perhaps even tie their own identity to its games makes Games Workshop an unusual business. It would be appropriate to compare it with other content franchises like Star Wars, Lord of the Rings and Harry Potter (Games Workshop has even had a LOTR miniature line for a long time), although its fans would probably argue this comparison is ill-considered.

But there’s an important difference as well; Warhammer has always been limited by its own format from going mainstream (most of its fans wouldn’t want that anyway, but Games Workshop investors probably would). While the abovementioned franchises are quite accessible through books and movies, the Warhammer world’s dominant format is its games, which take considerable time, effort and money to master.

The games’ rulebooks are quite extensive, mostly available in English only (as far as I know), while building an actual miniature army costs quite a lot of money and painting time (yes, you need to assemble and paint the models yourself!). The unit seen above would set you back some £10, or $15, before shipping and does not include paint, glue or brushes. By the time you have assembled a battle-ready army you would probably be down by at least £1000. Most hobbyists will also invest considerable sums in setting up battle-appropriate scenery and other stuff like travelling cases for army transportation.

Another impediment is that its games are most enjoyable when played with other fans (owning opponent armies), which incentivizes people to recruit their friends (great for the company), but can also form an obstacle to start. Being recruited by a friend is how I got into Warhammer in the first place, and it’s also how I fell out of it when my fellow hobbyist turned out to be so freakishly competitive that playing bi-montly casual games quickly turned into horror Sundays.

Given the company’s rather small size they have relied on their own stores as their primary way of recruiting new customers. Stores function as something of a gaming community hub and regularly organize events like model painting or game events. Even though the company has some 462 physical stores and its products are available at an additional 3900 or so independent trade locations, the exposure gained from that presence is nowhere near the same as having millions of books sold or being a major movies franchise (like Harry Potter and Star Wars).

As can be expected, Games Workshop has had investors suggesting the company monetize its rich content library in ways other than through games, magazines and its own books. The company’s management, which has shown signs of a slightly bipolar attitude with regards to the stock market, actually wrote that they were getting tired of hearing these ideas. Below is an excerpt from chairman Tom Kirby’s letter in the annual report of 2016. While I can appreciate honesty in a chairman’s letter, this is probably a little too much on the nonconformist side. I really don’t think you should blame shareholders for seeing some opportunity in the company’s intellectual property.


While it’s true that the company has for a long time monetized its intellectual property by licensing its content to other companies, computer game developers in particular, the size of these revenue streams has remained rather modest. Royalty revenues came to some £7.5 million for fiscal year 2017, while company revenue came to some £158 million in totoal. One of its most successful collaborations in this regard has been with SEGA for the Warhammer: Total War installment of Creative Assembly’s popular game franchise Total War. An additional benefit arising from license deals is that they do not only generate royalty fees, but also help the company gain exposure to potential new customers.

Besides the lack of obvious avenues for growth in its core business, the unwillingness to listen to shareholder suggestions regarding IP monetization was another reason why I decided not to invest at the time.


The trailer for the popular computer game Warhammer: Total War by Creative Assembly.


When I checked into the company recently, I was surprised by what had transpired in recent years. Not that the company had suddenly signed a deal for a major movie or tv series, which I still think their content is well-suited for. No, the company had suddenly shifted into a high-growth mode for its main business of selling miniatures and games. Revenue growth accelerated from +21% in fy2017 (+33.92% including currency effects) to 53.6% in H1 of 2018. The effect of that acceleration can be seen in the company’s stock chart below. The shares have quintupled since early 2016 to all-time highs around £28. I have used a long-term chart to show how unusual this share price movement is.


Games Workshop’s rather cyclical share price performance since becoming a public company in 1994 has turned into a major upswing as organic revenue growth kicked into a higher gear.

So what’s the story here? Why has the company’s market capitalization exploded into the stratosphere? A large acquisition perhaps? Nope. A spectacularly popular new game? Well, maybe. But even if its new launch of Warhammer 40k has proven popular, the company has launched new games since being founded. And it’s not like current games are enormously different from those of the 1990s or the 2000s. The customer proposition has remained by and large the same. No, in my opinion there must be something else at work.

Historically, the recruitment of new customers has always shown characteristics of ebb and flow, as young people entered its fantasy worlds with a new game installment and exited when growing into a different life stage. Which begs the question; is this simply a megacycle or is it the new normal for this formerly niche hobby? If H1 of 2018 is any indication the company could still be selling for only 15x this year’s earnings. That does not seem excessive by any means, but when I look at that stock chart everything is screaming ‘PEAK’!

Reading through the company’s filings, news reports and investor forums has not made me much wiser, which has propelled me to come up with my own theory regarding the company’s suddenly surprising performance. If the company historically relied on its own stores for customer recruitment, as other marketing channels were unfit for reaching its niche audience, perhaps the rise of social media has simply handed the company a magnificently efficient marketing tool for cheaply reaching new customers.

The company is active primarily on Facebook, Youtube and Twitch but I couldn’t find them on Twitter or Instagram. For instance, the video below featuring a sneak peek for some pending product launch appears on its Youtube channel Warhammer TV and has attracted 115k views in two weeks, demonstrating the company’s improved avenues for customer recruitment.

Besides company-produced content there is an entire unofficial library devoted to Warhammer being updated daily by its global base of fans, doing all of the things that the company has historically used its shops for, from performing battle games and painting models all the way to actual role playing. The company has stimulated its online community by launching and featuring model paint jobs shared by users on social media on If you look up the hashtag #paintingwarhammer on Instagram it will show some 375,090 hits. And looking through some of the content shared by users clearly shows why the company’s products work so well on visual-based social media.

So, my theory is that the continued rise of social media has handed Games Workshop the means of reaching a niche audience far more effectively than before, especially through visually appealing and open platforms like Youtube. The company’s products simply work very well in that setting; its models look great and its cult-like following has produced heaps of widely-distributed content for free, effectively putting the old word-of-mouth through the digital amplifier. It’s therefore very well possible that the company’s newfound growth will indeed prove to be the new normal.


Disclosure: At the time of publication I had no position in any of the equity instruments mentioned in this article.