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Welcome to the Supernatural Stocks Podcast on Moneyweb, hosted by The Finance Ghost. This is your weekly guide to both local and global insights that cater to investors and traders.
This episode features a special holiday theme of Supernatural Stocks, highlighting an industry that thrives during this time: the business of play. Although this is a serious topic, I aim to explore a more unconventional realm, steering clear of the major digital gaming firms and toy makers. Join me as we delve into the fascinating universe of tabletop gaming, with an emphasis on strategy.
Please bear with me regarding the length of this podcast; my enthusiasm for these subjects is high, and I’ve strived to keep it concise!
I’ve always had a profound love for strategy games, having played a lot of chess during my school days and being an early admirer of Magic: The Gathering. The main difference is that chess is played with the same pieces in identical positions, lacking elements of randomness. This allows computers to dominate chess.
In contrast, Magic: The Gathering requires players to build their decks, where the element of surprise plays a significant role, adding randomness and variability to the game.
With countless decisions to be made throughout each game, we won’t see headlines of computers outsmarting top players anytime soon.
My passion for Magic also extends to Warhammer, which operates on a similar principle, albeit with plastic miniatures. Regardless, playing is an engaging experience, constantly stimulating both sides of your brain as you interact with a clever opponent.
Enhanced by YouTube
One of the joys of these games lies not just in their challenge but in the vibrant communities that accompany them. You are sure to meet intriguing individuals and possibly make new friends. Additionally, YouTube serves as a fantastic resource for skill development, featuring creators offering niche content centered around your favorite games.
This is where the best aspects of the internet and human interaction merge for those who appreciate the joy of play—even as adults!
A lesson my children have taught me is that we adults often neglect playtime. I’m dedicated to changing this, and it has positively influenced my life this year. I know I’m not alone; many communities echo this sentiment. Furthermore, YouTube emerges as a remarkable enterprise, being one of Alphabet’s top assets, the parent company of Google.
Read: The economics of YouTube
Multiple publicly traded companies are capitalizing on this play phenomenon.
Notable among them is Games Workshop (LON: GAW), famous for Warhammer.
As mentioned earlier, Warhammer revolves around miniatures instead of cards. Players design and paint their figures, and the painting aspect is a unique yet vital part of this hobby. Competitions for both painting and gameplay skills exist, highlighting the immersive nature of this experience. You choose a faction, build an army, and refine your strategies to compete against others on the tabletop.
Even if these games don’t catch your attention or seem frivolous, consider this: how does a 34% increase in year-to-date share price at Games Workshop sound? That’s in GBP [£], which is crucial to keep in mind when assessing that percentage.
This gain isn’t just about boosted miniature sales; it reflects the extensive and immersive intellectual property (IP) they have developed over the years.
Games Workshop has teamed up with Amazon for a film and television series, which has generated significant excitement. The project primarily centers around the Warhammer 40K lore, akin to the sci-fi battles depicted in the games.
Read: An investors’ guide to the world of online gaming
Fans of Henry Cavill, known for his role as Superman, will be thrilled to learn that he is set to star in the series. He often expresses his enthusiasm for Warhammer on popular talk shows.
The influencer effect
This brings us to the significant role of influencers within the gaming community.
Many creators excel at building community, sharing gameplay knowledge, and enhancing the overall gaming experience—resources I wish I had growing up. Platforms like YouTube and Twitch have transformed the gaming landscape. Yet, even the brightest creators can’t replicate the excitement generated by a true celebrity.
Read: The games people watch
Henry Cavill appears genuinely willing to spend all his free time playing Warhammer if he could. His fervor is evident in his wholesome Instagram posts, including a visit to a local game store in Jersey, proudly dressed in Warhammer gear—a refreshing change from typical Hollywood portrayals. That post attracted over 1.8 million likes—now that’s some excellent publicity!
In the realm of Magic: The Gathering, the standout celebrity is Post Malone.
The award-winning artist makes headlines in unusual ways; notably, he bought the world’s most expensive Magic card for $2 million. Yes, $2 million—and it’s still just cardboard!
To clarify, this card is from a Lord of the Rings crossover set and features The One Ring, inscribed in Elvish. Only one copy was printed worldwide.
Storytelling holds immense commercial potential, and few intellectual properties can compete with Lord of the Rings in terms of marketability—although Warhammer is certainly putting in an impressive effort!
Listen: The business of gaming and esports
The key takeaway is that in our internet-driven world, where influencers wield extraordinary power, the popularity—and thus the profitability—of games can change drastically with the involvement of a high-profile celebrity.
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The importance of digital gaming
Although these games are fundamentally tabletop experiences, it would be a mistake to underestimate the role of digital gaming. Part of Warhammer’s current appeal stems from titles like Space Marine 2, based on Warhammer 40K, which has received fantastic reviews. This not only introduces new audiences to the IP but also attracts individuals who might never step into tabletop gaming.
It’s less about channeling players into the physical game and more about uncovering new monetization pathways for the IP.
Personally, while I cherish tabletop games, I’m not particularly inclined towards computer games. Nevertheless, the dual approach broadens the customer base, facilitating better monetization prospects.
One critique of Magic: The Gathering is that they introduce the IP too quickly, with excessive story elements. While Hasbro (the listed company owning Wizards of the Coast, and thus Magic: The Gathering) effectively monetizes gameplay, I feel they invest less effort into the overall IP these days.
Building a deck of cards is much faster than painting an entire army and seeking an opponent to challenge, leading to more frequent releases of new sets to preserve gameplay freshness.
This strategy maintains revenue flow, but fails to offer the same storytelling depth found in Warhammer—at least, that’s my take.
It logically follows that Magic’s digital presence is anchored on platforms where players can engage in online competitive gameplay similar to playing chess over the Internet.
Listen: SA gaming juggernaut takes on the world with play-to-earn
The overseers of both Warhammer and Magic: The Gathering understand the core strengths of their IP, as demonstrated by their strategies for online adaptation. These approaches yield valuable business insights and clarify the competitive advantages possessed by these games.
Are they profitable?
Indubitably. They are highly profitable. A recent trading update from Games Workshop anticipates a revenue increase of 16.6% to £290 million and a minimum pre-tax profit rise of 24.9% to £120 million for the six-month period concluding on 1 December 2024.
It’s worth taking a moment to appreciate a pre-tax profit margin of 41.4%—that’s a rarity!
Complete details of the interim results will be available on 14 January.
For Hasbro, the situation is more complicated. Their reports combine segments from Wizards of the Coast (including Magic: The Gathering) with other digital gaming revenues, obscuring a clear analysis of Magic. Buying shares of Hasbro gives you exposure, but the company’s product range includes various toys with few entry barriers.
Read: How SA can grow its gaming industry
Therefore, Hasbro’s figures might be affected by components like the digital Monopoly game. Nonetheless, in the last quarter—which was influenced by the Lord of the Rings set during the comparable period—Magic still witnessed a 3% revenue growth.
The operating margin for the Wizards segment was 44.9%. Although the exact margin for Magic remains uncertain, the segment’s performance is impacted by licensed and digital games, suggesting Magic likely operates with even higher margins. It indeed represents a lucrative business model.
For investors, the preference leans towards Games Workshop
For investors weighing which option to pursue—if any—there’s plenty to contemplate.
The chaotic structure of Hasbro as a publicly traded entity makes it an unattractive option for those seeking targeted exposure to Magic: The Gathering as a business. This reality has led activist investors to urge Hasbro to spin off Wizards of the Coast as a standalone entity, but if that hasn’t occurred by now, the likelihood seems slim, given that it’s a revenue generator for Hasbro.
Even if it were spun off, Magic appears to be releasing sets at an unsustainable rate, and despite that, it only achieves modest single-digit revenue growth.
Concerns about player fatigue are escalating, particularly relating to the expenses required to stay competitive in the hobby. Despite being a great business, it seems destined for a slow growth path considering its longevity.
Furthermore, Magic does not have the advantage of an upcoming Amazon series featuring Henry Cavill living his fantasy as a Warhammer character. This contributes to why Games Workshop presents a more straightforward investment option, as it strictly offers exposure to Warhammer without the additional complexities tied to Hasbro.
The sole obstacle is locating a reliable offshore brokerage to acquire the shares, especially since Games Workshop is listed in London rather than the U.S., where many South Africans seek to invest abroad.
If only Games Workshop would think about listing a tradeable instrument in the U.S. following the Amazon series, it could spur significant positive momentum for the stock price. It’s definitely worth monitoring.
For now, though, it’s time for me to get back to painting. The learning curve is quite steep, yet it’s a journey I am genuinely enjoying.
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