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Welcome to the Supernatural Stocks Podcast on Moneyweb, hosted by The Finance Ghost. This is your weekly destination for local and global insights tailored for investors and traders.
This episode presents a festive special edition of Supernatural Stocks, focusing on a sector that thrives during this time of year: the entertainment industry. While it’s a significant field, I’ll be delving into a more unconventional area instead of the typical digital gaming giants or toy brands. Join me as I uncover the captivating realm of tabletop gaming, with an emphasis on strategy.
I hope you’ll bear with me for the length of this podcast; I have a genuine enthusiasm for these subjects, and I promise I’ve aimed for brevity!
I’ve always held a strong affection for strategy games. I was an avid chess player during my school years and became an early advocate for Magic: The Gathering. A key difference here is that chess is played with the same pieces in identical positions every time, lacking elements of chance. As a result, computers can excel at chess.
In contrast, Magic: The Gathering requires players to build their decks for gameplay. The significance of surprise plays a vital role, introducing chance and variability into the experience.
With numerous choices to ponder during each game, it’s unlikely that we’ll see computers outsmarting the top players anytime soon.
My passion for Magic extends to Warhammer, which shares a similar principle but features plastic miniatures. Regardless, when you participate, you’re interacting with a clever and fascinating opponent, continually engaging both sides of your brain.
Enriched by YouTube
A significant joy of these games goes beyond just the captivating gameplay; it’s the vibrant communities that come with them. I assure you’ll meet intriguing individuals and possibly form new friendships. Plus, YouTube is a goldmine for honing your skills, boasting creators who deliver niche content related to the games you cherish.
Everything wonderful about the internet and human interaction converges here for those who appreciate the sheer delight of play—even as adults!
A lesson from my children is that we adults don’t engage in play nearly enough. I’m on a personal journey to amend that, and it’s made a substantial difference in my life this year. Many communities resonate with this sentiment. Moreover, YouTube stands out as a remarkable enterprise, representing one of the best assets of Alphabet, Google’s parent company.
Read: The economics of YouTube
Several publicly traded firms are capitalizing on this trend of play.
A notable example is Games Workshop (LON: GAW), famous for Warhammer.
As mentioned earlier, Warhammer revolves around miniatures instead of cards. Players design and paint their figures, with painting being a unique yet vital aspect of the hobby. Competitions exist for both painting talent and gameplay, emphasizing the immersive nature of this experience. You choose a faction, build an army, and refine your strategies to challenge others on the tabletop.
Even if these games don’t captivate you or come off as trivial, consider this: how does a 34% year-to-date share price increase at Games Workshop sound? That’s in GBP [£], so take that into account when assessing that percentage.
This return isn’t just due to increased miniature sales; it’s the extensive, immersive intellectual property (IP) cultivated over decades.
Games Workshop has teamed up with Amazon to create a film and television series, generating significant anticipation. It largely focuses on the Warhammer 40K narratives (or lore, as we enthusiasts refer to it), translating to the sci-fi battles depicted in the games.
Read: An investors’ guide to the world of online gaming
Fans of Henry Cavill, renowned for playing Superman, will be thrilled to know he is set to star in the series. He frequently expresses his passion for Warhammer on prominent talk shows.
The impact of influencers
This leads us to the significant influence of creators in these gaming spheres.
Numerous creators excel at fostering community, sharing gameplay insights, and enhancing the overall player experience—resources I lacked as a child. Platforms like YouTube and Twitch have revolutionized the gaming ecosystem. However, even the most skilled creators cannot replicate the excitement generated by a true celebrity.
Read: The games people watch
Henry Cavill seems like he would happily devote all his spare time to playing Warhammer if presented the chance. His enthusiasm is clear, as shown in his wholesome Instagram posts, including a visit to a local game store in Jersey, decked out in Warhammer gear, presenting a refreshing alternative to typical Hollywood personas. That post received over 1.8 million likes—that’s remarkable exposure!
In the world of Magic: The Gathering, the star is none other than Post Malone.
The award-winning artist makes headlines in distinctive ways; notably, he acquired the world’s most elusive Magic card for $2 million. Yes, $2 million—and it’s still just cardboard!
To clarify, this card belongs to a Lord of the Rings crossover set and features The One Ring, written in Elvish. Only one ever existed globally.
Storytelling holds vast financial potential, and few intellectual properties rival Lord of the Rings in marketability—although Warhammer is certainly making great strides!
Listen: The business of gaming and esports
The core takeaway is that in our internet-driven world, where influencers wield unparalleled power, the popularity—and thus the profitability—of games can change dramatically when a well-known star endorses a project.
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The importance of digital
While these games are fundamentally tabletop experiences, it would be a mistake to underestimate the importance of digital gaming. A segment of Warhammer’s current allure can be attributed to titles like Space Marine 2, based on Warhammer 40K and highly praised. This not only introduces a new audience to the IP but also attracts those who may never engage in tabletop gaming.
It’s less about funneling players into the physical game and more about exploring innovative ways to monetize the IP.
Personally, while I cherish tabletop games, I’m not particularly interested in video games. However, this dual approach widens the potential customer base, offering better monetization avenues.
One critique of Magic: The Gathering is that the IP is introduced too fast, with an excess of various story elements. While Hasbro (the publicly traded company that owns Wizards of the Coast and therefore Magic: The Gathering) effectively capitalizes on gameplay, they seem to invest less into the foundational IP these days, in my opinion.
Building a deck of cards is much quicker than assembling an entire army and finding a challenger to play against, resulting in frequent new set releases to keep the gameplay fresh.
This sustains revenue, but doesn’t provide nearly the narrative depth available in Warhammer—at least, this is my perspective.
It therefore makes sense that Magic’s digital presence is based on platforms that allow players to engage in digital matches against opponents globally, much like playing chess online.
Listen: SA gaming juggernaut takes on the world with play-to-earn
The gatekeepers of both Warhammer and Magic: The Gathering understand their IP’s core strengths, which is reflected in their strategies for online adaptation. These insights offer valuable business lessons and highlight the competitive advantages of these games.
Are they making money?
Definitely. They are indeed profitable. A recent trading update from Games Workshop indicates an expected 16.6% rise in revenue to £290 million and a minimum 24.9% increase in pre-tax profit to £120 million for the six-month period ending 1 December 2024.
It’s worth pausing to appreciate a profit before tax margin of 41.4%—a rarity in the business landscape.
Full details of the interim results will be disclosed on 14 January.
In contrast, Hasbro’s landscape is more intricate. Their reports merge the segments of Wizards of the Coast (including Magic: The Gathering) with other digital gaming revenues, complicating a clear analysis of Magic. Investing in listed Hasbro shares gives you exposure, but the landscape also encompasses various products, like shelf toys, which face minimal competition barriers.
Read: How SA can grow its gaming industry
Hence, Hasbro’s numbers could be skewed by elements like the Monopoly digital game. Still, in the latest quarter—which was influenced by the Lord of the Rings set during the prior period—Magic generated a 3% revenue growth.
The operating margin for the Wizards segment hit 44.9%. While the specific margin for Magic remains elusive, the segment’s performance is weighed down by licensed and digital games, indicating that Magic boasts even higher margins. It is undoubtedly an exceedingly profitable venture.
For investors, the preference leans towards Games Workshop
For investors considering which option to pursue—if any—there’s extensive deliberation involved.
The disorganized nature of Hasbro as a listed entity renders it less desirable for those specifically looking to invest in Magic: The Gathering as a business. This is why activist investors have long been advocating for Hasbro to independently separate and list Wizards of the Coast. However, if that hasn’t happened yet, the likelihood is diminishing, as it proves a lucrative stream of revenue for Hasbro.
Even if it were to be listed separately, Magic seems to be releasing sets at an unsustainable speed, and even so, it only achieves modest single-digit revenue growth.
Concerns regarding player fatigue are rising, especially with respect to necessary investments to remain competitive in the hobby. Despite being a fantastic business, it appears to face a gradual growth horizon given its legacy.
Furthermore, Magic lacks the support of an upcoming Amazon series featuring Henry Cavill as a character from Warhammer. This is a significant factor in why Games Workshop is a clearer choice for this investment theme, as it solely provides exposure to Warhammer without the added complexities presented by Hasbro.
The only obstacle is locating a reliable offshore brokerage platform to buy the shares, notably since Games Workshop is listed in London rather than the U.S., where many South Africans aim for offshore investments.
If only Games Workshop would consider listing a tradeable instrument in the U.S. after the Amazon series, it could potentially generate significant momentum for the stock price. It’s certainly something to monitor.
For now, I’m heading back to my painting. The learning curve is steep, yet it’s a journey I’m genuinely relishing.
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