Games Workshop, Miniatures Models but Massive Returns

How a niche hobby became an empire?

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Today, we are diving into a fascinating UK company: Games Workshop. Best known for its miniature wargame Warhammer, the company has built a loyal following. But is its stock a smart investment? Or does it lack the margin of safety needed to be truly compelling? Let’s find out!

The business model

Games Workshop's business is divided into two main segments:

• Core revenue. This represents the company’s primary activity: designing, producing, and selling its products, including miniature models, paints, and books

• Licensing. A smaller but highly profitable segment, licensing helps expand the brand while generating near-pure profit (£27 million operating profit from £31 million in revenue)

The company designs, produces and distributes itselft. The production center is in the UK and they have 3 distribution centers: UK for Europe, US for North America and Australia.

500 shops sell and distribute Games Workshop’s products. However, just a fraction is directly owned by the company. These shops ensure the distribution of the products (miniature models, paint, books, accessories, merchandising) and are located in UK, USA, Canada, Australia, New Zealand, Japan, China, France, Germany, Spain, Italy, the Netherlands, Eire, Belgium, Austria, Poland, Norway, Sweden, Denmark and Finland.

The different universes

Games Workshop sells products from different universes:

• Warhammer 40K. A grimdark sci-fi universe set in the 41st millennium, where countless factions wage eternal war across the galaxy, ruled by a decaying Imperium under the godlike Emperor

• Age of Sigmar. A high-fantasy setting where powerful gods, warriors, and monsters battle across mystical realms, following the destruction of the Old World and the rise of the Mortal Realms

• The Horus Heresy. A pivotal prequel era in Warhammer 40K, chronicling the galaxy-spanning civil war where the Warmaster Horus betrays the Emperor, leading to the fall of half the Space Marine Legions

• The Old World. A dark and brutal fantasy realm inspired by medieval and Renaissance Europe, filled with warring human empires, monstrous creatures, and ancient magic, serving as the predecessor to Age of Sigmar

• Middle-earth. Based on J.R.R. Tolkien’s legendary works, this universe brings to life the epic struggles of men, elves, dwarves, and orcs in a battle against the Dark Lords Sauron and Morgoth

The recent expansion into the Middle-earth universe will be a significant boost for the company, not only creating a new revenue stream but also attracting fresh players to the world of miniature wargaming, driving both interest and foot traffic to stores.

More than a simple hobby

The Warhammer hobby offers a rich and engaging experience across four key aspects:

• Collecting. Whether drawn to specific miniatures, inspired by rich lore, or eager to build vast armies, collectors are always expanding their forces, fueled by a steady stream of new releases

• Modelling. Assembling and customizing miniatures, from simple one-piece models to intricate kits, allows hobbyists to develop their creativity and craftsmanship

• Painting. Bringing miniatures to life through painting is both a skill and an art, with hobbyists crafting unique color schemes or following official guides to personalize their models

• Gaming. Tabletop battles range from small skirmishes to massive wars, with players constantly growing their armies and refining their strategies through immersive gameplay

This model offers several key advantages. First, the collecting aspect grants the company strong pricing power, as artificial scarcity can drive up demand and prices. Additionally, modelling and painting create endless opportunities to sell complementary products like accessories, tools, and paints. Finally, the gaming element fosters a highly engaged community, which not only strengthens brand loyalty but also serves as a powerful driver for organic marketing and word-of-mouth promotion.

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