Hobbyist retailer and FTSE 250 constituent Games Workshop has grown exponentially in recent times, with its share price rising 1505% over five years, but a recent spat regarding its stance on intellectual property has put pressure on its value, despite delivering in line with forecasts.
The conflict stems from the company's tightening grip on its "much-loved" portfolio of characters and stories, along with protecting its miniatures from potential scammers with 3D printers, which has caused an upset within a section of its devoted community that enjoys producing fanfiction and films.
Since the group announced its Warhammer+ subscription service in June 2021, which offers customers a range of perks including an animated series based on the lore, and began to issue cease and desist orders, the share price has fallen more than 25%.
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However, Margaret Lawson, manager of the SVM UK Growth and UK Emerging funds, does not anticipate "any impact from a boycott" and suggested the tumbling share price was "the wrong reaction".
"There is often a tension between franchises and fans, which becomes more acute as the value of IP grows and a brand is extended online and into other partnerships," she said.
"Games Workshop is going through this stage of evolution, which inevitably means a need for stronger control on IP and disappointment for some."
Abby Glennie, deputy head of smaller companies at abrdn, agreed the move was a "sensible" one and that a "loyal" customer base with a "passion for the hobby" is unlikely to be disrupted by a boycott she believes is "amplified by the media, and in reality, very limited in nature".
The scale of the protest was also noted by Keith Ashworth-Lord, CIO of Sanford DeLand Asset Management, who suggested the ‘GW Boycott' Reddit thread's 18,900 votes is dwarfed by the more than 8m users of Warhammer-community.com.
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However, senior investment and markets analyst at Hargreaves Lansdown Susannah Streeter warned that "fan sites can be the lifeblood of a brand" and their upset is ignored at peril.
"Although it is understandable the company wants to protect IP from scammers replicating its miniatures using 3D printers, Games Workshop appears to have upset a die-hard fan base by cracking down on amateur animations as well," said Streeter.
"We have seen before how tips and advice can spread like wildfire through social media, so the growing clamour on sites like Reddit for a boycott of the company risks being the tip of the iceberg of problems for Games Workshop."
Outside of the boycott, investors are largely positive on the brand, noting a strong management team, range of licensing deals, global expansion and financial prudence as some of the factors that benefit Games Workshop.
Manager of Premier Miton UK Growth, Benji Dawes, argued the "unique and fascinating company" is only in the early stages of monetising its IP and noted the growing appeal of the brand across Asia Pacific could be a "game changer".
"The company has not focused too much energy on the region historically, in part because literal translation of their fantasy miniatures is not straight forward," he explained.
"For instance, ‘bone skull crusher' does not go neatly into Japanese or Mandarin. This is changing however, as translation technology is improving, and the business has a growing team devoted to the region."
Global reach
Glennie also highlighted the global reach of the brand, along with a trinity of methods within a "capital light model" that is used to sell to consumers: store, online and third party.
She added the "excellent" management team has pushed the business forwards over recent years, particularly in relation to the "very high margin and return" business of licensing its IP across a range of formats, including video games, novels and television shows.
Licensing and royalties were a key factor for Sandford DeLand's Ashworth-Lord, who noted the firm's royalty income had increased almost 1000% in six years, from £1.5m in 2015 to £16.3m in 2021.
He added that Games Workshop has a "significant" benefit owing to the dedication of its fanbase, allowing the firm to enjoy gross margins of more than 70% across its range.
The firm was also a beneficiary of the changing consumer habits as a result of lockdown, Lawson noted, as most people found themselves with more leisure time on their hands.
Strong future for brand
Lawson also suggested there is a strong future for the brand, which is managing a "strong project pipeline" in conjunction with ever-strengthening IP and royalty relationships, including recent deals with Sega and Frontier Developments.
"[Games Workshop] is more than just a niche retailer serving hobbyists - it is rapidly extending its Warhammer and Middle Earth game franchises into new areas," Lawson said. "The careful way in which it has nurtured its franchise has delivered consistent growth in revenue and profits.
"Games Workshop now has momentum in broadening its spread of relationships, growing content, and improving functionality."
