Games Workshop (LON:GAW) , like a number of companies, is one that's interested me for a while. It's sat on my watchlist inoffensively for a year or so now as the price has slowly crept upwards, but the last week has seen a break in that trend. Games Workshop dropped from their peak of 723p a share to currently trade at 528p a share, as their half yearly results disappointed investors. It's not too hard to see why; revenue is down just over 10%, operating profit is down 30% and management aren't offering any near-term light at the end of the tunnel; they say structural changes will continue to depress profits as the rejigging takes place; though they don't mention how long those changes will take to implement.
A brief overview of Games Workshop, for those who don't know them; they're a producer of models, primarily, but the real value is a level deeper than that. They have created 2 main 'worlds' - a sci-fi and a fantasy - complete with differing races, lore and histories - with a rather substantial amount of detail built up in the 30 years of operation. Gamers essentially build an army using models built up of one of the races and battle each other using the fiendishly complicated ruleset. This, to me, is where the value is provided. Making nice models is an element, of course, but in producing thematic and diverse armies - and supporting a whole hobby around the creation of them - there are a number of network effects. There is value created in the models beyond simply the aesthetic. I have a modicum of insight into GAW, too; I've a bunch of the models sitting on a shelf from a fledgling interest a few years back (too time consuming, as it turned out) which gives me some small understanding of the business more than I might have. That's a positive. On the more negative side, in the words of the inimitable Paul Scott over at Stockopedia:
the slightly odd customers that these shops attract are probably very loyal, as they are locked into that nerdy lifestyle, and probably won't be getting married any time soon...
... my marriage prospects have apparently taken a substantial nosedive in the wake of this revelation. Still; what with the…
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