Jan 2023: GW Half-Yearly Financial Report, I had made a mistake, HH 2.0 overestimated

[spessmarine]

15 hours ago, Burni said:

Thanks for the write up @N1SB

 

Glad AoD is doing well - its certainly the only GW stuff I'm currently buying and I'm really enjoying building and painting them. If this encourages them to push more into HH plastics, they'll get no complaints here.

 

Not the forum for it but I wonder what's gone wrong with AoS 3rd Ed. Seems like a lot of online people are down on it, from my limited perspective.

not the forum for it indeed, but may be just due to 40k being so much bigger
HH benefits from being much more easily cross-compatible with 40k, mechanicum is something they totally could've ported ages ago (rip cyraxus) to add to existing marines and custodes overlap

Edited January 13, 2023 by spessmarine

[Inquisitor_Lensoven]

https://www.wargamer.com/warhammer-40k/games-workshop-loses-2-million-to-Russia-war
 

in the grand scheme of things 2.4 million dollars doesn’t seem like that much. That’s what a dozen army boxes? :P

[Marshal Rohr]

Happy to see Heresy have such a big impact. but very surprised it overtook AoS. Now, if they'd release the Cults and Militia/Daemons pdf and maybe even Sktarii they'd have even more cross compatibility to boost those numbers :D

[Captain Idaho]

Reading that analysis, taking it as more expert than my own, I deduce a fairly predictable release cycle for stuff outside the major lines - things need to be released to shore up the drop in performance of AoS, even if a blip they can't take the risk.

 

So it was said in the analysis The Old World could very well be released in the same year as AoS 4th edition (major release etc) and thus be a big year. Or GW will release additional other things if they want The Old World to be the 4th big release cycle, so a bunch of boxed games and specialist games.

 

Epic confirmed! 

[Lord Marshal]

1 hour ago, Marshal Rohr said:

Happy to see Heresy have such a big impact. but very surprised it overtook AoS. Now, if they'd release the Cults and Militia/Daemons pdf and maybe even Sktarii they'd have even more cross compatibility to boost those numbers :D

 

I'm not that surprised. It's Space Marines: The Game and we all know plastic Space Marines will always sell like hotcakes.

 

It will have also helped that it landed at the end of a 40k edition. Like in 2016, a lot of disenfranchised people will prefer to reach for 'what they know' and wouldn't ya know it, there's a GW game set in the same IP which lets them build/paint Space Marines jjjuusssttt releasing a new boxset, but it uses different rules to the 9th they need a break from...

 

 

 

Edited January 13, 2023 by Lord Marshal

[Pacific81]

Will be interesting to see how much the UK recession feeds into this. I know a lot of GW fans are wealthy and will not notice it, but the company has brought a lot of financially less well off people back into the hobby over the last decade with the lower entry price boxed games, and as a 'non-essential' luxury item these purchases are going to stop while customers are having to choose between food, a warm home and utility bills. Although I am sure there is a joke there of many hobbyists still buying miniatures instead of one of those things..

[N1SB]

 1st, thank you again for reading and just talking with your friends in your meta about this: everyone is so focused on the Amazon deal, but there's already a Star, and it's the Horus Heresy.  It looks like a foregone conclusion now, but it really wasn't.  It could have been received like a niche game.

 

 

Accounting is so complicated even CEOs complain

 

 

It's hilarious what CEOs actually complain about.  They have a pretty good idea how unpopular their jobs are, it comes with the territory, you think you hate them, consider all their colleagues whom they passed over for the top job.  But to get there, they develop thick skin...and even they whine about accounting.

 

On 1/13/2023 at 12:36 AM, StraightSilver said:

Ah, I was completely unaware there was a monthly subscription available, I thought you could only pay all in one go - now I feel stupid paying all at once..... :)

 

Do NOT feel stupid...they actually do updates called International Finance Reporting Standards like Accounting Balance Dataslates to fix problems.  The TL;DR is you pay for an annual US$60 subscription, on half-yearly reports like this one they'll only count US$30 of it (literally half), because of these new rules.

 

They've started doing this because so many things are subscriptions now.  Consider IT, software and servers and stuff.  Used to be you bought software licenses and server hardware, now it's all subscriptions and Cloud-computing, you don't own anything anymore, you only rent it.  It's like having to rent your miniatures.

 

You get a few CEOs drunk in a cocktail party, they'll rant about stuff like this.  You are so not alone.

 

 

New GW CEO is really good at assembling these reports

 

 

For what it's worth, new GW CEO breaks down everything really well, super-transparent.  He probably writes better than GW's rules designers.  He went through every detail concisely, more than is asked...to the point some random game website could use each bullet for a new headline.

 

There's also these very sensible things that he does, like how he accounts for the miniature designers.  Other CEOs would probably toss them into this Research & Development bucket with everything else...a mystery Black Box, like a slush fund.  Microsoft reports Windows, Office, Xbox Revenue in clearly different lines, but all their R&D all are hidden in the same bucket, even though the guys developing the next version of Excel is probably completely separate from the ones designing the new Xbox!  Instead, GW CEO put the miniatures designers in the same expenses category as their colleagues who actually manufacture them.  Very common sense, but common sense is not common.

 

In 40k terms, you know how Space Marine Scouts are in Elites slot, not Troops?  New GW CEO would likely put them back in Troops, where they belong.

 

It is appreciated, at least by me.  Downside is, random game website doesn't know how to weigh this, making each bullet The Biggest Story Ever.

 

 

I Made Artwork...for a financial report (this is weird even for me)

 

On 1/12/2023 at 10:09 PM, Noserenda said:

Good news then :) I was surprised AoD has overtaken AoS and its seemingly halfway to 40k!

I do suspect the Forgeworld spike in 2016 might have more to do with Warlord titans than the middle of 1st ed Heresy, especially as the plastics were starting to come out around then and they would have gone on the general mail order numbers as i understand it (At least for revenue) and thus eroding the FW sales of resin marines, but not upgrades i guess? 

But yeah, ive heard anecdotally that whilst Warlord titans are a lot of work for FW they are massively profitable, and given their cost could create quite a bump even with comparatively few sales, and FW has sold thousands according to the certificate numbers, though obviously not all at once :D 

 

As always, you totally get what I'm saying, a lot of what used to be Mail Order/Online (Forgeworld) now is shifted to Trade (FLGS)/Retail (Warhammer Stores), but the lump sum Revenue is the same.  It is indeed an important shift.  However, it always a little bit nebulous, exactly what eats into what.

 

And I know what you're saying, so this is just a reminder.  40k consistently coincides with a £38m bump, 30k with a £20m bump, BUT it's not like 40k itself brought in the £38m and 30k £20m.  There's always other sales going on from GW's huge range.  Those numbers are just for eyeballing sizes.

 

So you remember how that Tale of Painters site did everyone a solid with a exact side-by-side comparison of different Marks of power armour?

 

 

To compare, GW Revenue is like a mountainside going up and up, with a pile of snow representing all sorts of background sales.  New editions of 40k, AoS, 30k stand atop this snow-covered mountain, and I'm trying to gauge their heights.  It's not exact, but I can see, overall *, 30k is bigger than AoS.

 

* Note - obviously, it varies from area to area, meta to meta.  So this definitely looks different where you are, but it's a macro view.

 

But you see what I was getting at.  We got very valuable intel, even if it's not accurate or precise, just to size the different product lines up.  My CFO friend ControllEric said on WhatsApp, "Let's see if this is consistent," as in does this trend continue with HH 3.0.  He's right, that'll be the true test.

 

 

I should've just talked about Growth, not Profit

 

 

On 1/12/2023 at 6:55 PM, Metzombie said:

Great write-up @N1SB. As allways a very interresting read.

One thing about stuff like Black Libary and Warhammer+ is they should probably not been seen as a pure money making tool but more as an marketing tool like the White Dwarf. I mean probably most of us get some inspiration for a project from a book or some WD articels or a battlereport. And not only gives us Warhammer+ more of this it gives us easy access to old WDs and campaigne books. Things newer players would probably never get their hands on othwerwise.

This is hard to put into value especially without all the data. I would be very interrested to know if GW have ever noticed something like "We put out a story with unit X doing some cool things and now we have sold 10% more of that unit" I would be supprised if they did not.

 

 

You're right, and I agree.  Your example with White Dwarf is great, it's like a banner ad in magazine stores, great comparison.

 

I was more concerned about Growth, not Profit, because if you use BL and WH+ as ads...you want more and more views and clickthroughs, leading to...

 

 

"Preaching to the converted"-only is a problem

 

 

On 1/12/2023 at 10:34 PM, StraightSilver said:

I think the fact that Warhammer+ made a profit in year 1 at all is impressive.

 

However, I'd query the assertion that it will make £6 million rather than the reported £3 million as the subscription costs are up front, rather than a monthly cost? So, unless there are more subscribers throughout the year (which there might be) the revenue would remain the same?

I personally am a subscriber, and am happy with the content for what I pay, but I find it frustrating that there isn't a console app (which is how I watch all of my streaming services). I have no idea if that would affect subs but it has certainly reduced the amount I actually watch, on a service I have paid for (because watching on a browser is not ideal - none of the videos play without buffering issues on my XBox but run fine on my PC).

I also think GW are "preaching to the converted" as far as advertising Warhammer+, in other words pretty much exclusively via their own channels, and think there would actually be a broad market outside of their existing customer base (gamers). For example, I have a lot of friends that read Black Library novels but have zero interest in gaming/collecting/painting that had no clue Warhammer+ existed.

I think if they ever got to a point of marketing outside of their own channels they would have to add more content and change their pricing model (same cost, paid for differently).

But, I would say Warhammer+ is definitely a success. And let's not forget, it's not just animated shows - it's battle reports, painting videos, lore videos and the vault. The content is still slim, but to have produced the amount they have, for the money spent, is actually very impressive.

The question now is: Do they feel if they invested more budget to produce more content, could they pull in more subscribers? I think the honest answer is yes, they could, but maybe not without changing the service in some way.

 

^ This is how I should have put it.  If the goal for BL and WH+ is to reach a broader audience, the lack of growth suggests there's been no broadening at all, it's just reaching existing Warhammer customers.  It kinda defeats the purpose of the exercise a bit.

 

Because it was recent, I mentioned how WotC saw they (thought they) have a huge Casual audience that's not buying anything; they might even play, but their DM buys everything for them.  With BL and now WH+ numbers not really changing, I really wonder if we even have a Casual audience.

 

(We may not think of ourselves as such , but if you use WotC standards, our buying, building, painting even a small army is way Hardcore.)

 

Imagine you're in charge of Warhammer+.  You're told to grow, but you need money to make money.  You go to GW CEO:

 

"Sir, I've a plan to increase WH+ subscriptions by 100%, all I need is another 50% more to our annual budget for even more content."

 

"Brother...I just laid off Tom, Dick and Harry, because the economic outlook is bad.  Your budget is £2 mil.  You're asking me for another £1 mil NOW?"

 

You can see the GW CEO gets your point, and you'll make the money back, but that budget could go elsewhere, and it's a bad time to ask.

 

It's the broader issue.  BL and WH+ are great, I was about to pick up that Robert Rath Assassins' book.  It's not a criticism of them.  It's the fact I think Brother Silver put it best, Warhammer is really good at preaching to the converted, but we've yet to crack the code on broadening our reach.

 

 

Thanks for the feedback, especially the U.S. on-the-ground view

 

 

I'm hearing you, I'm trying to make sense of the trend in North America.  What you reported in makes a lot of sense to me.  North America is already overtaking the UK, Warhammer's homeland.  That was awhile back, this is why it's a significant issue.  I want to double-check something from recent years.

Edited January 17, 2023 by N1SB

[Sky Potato]

Brother, every single word of your posts is absolute gold. Thanks for awesome analysis.

 

Formatting wise, your white headline banners merge into the white background of the mobile\tablet, making the headlines impossible to read.

[Noserenda]

Robert Rath is actually an interesting marketing example too, as he mentions/shows his books from time to time on the Extra history youtube channel, which is a whole nother potentially fresh audience :D  

[N1SB]

On 1/16/2023 at 2:41 AM, Sky Potato said:

Brother, every single word of your posts is absolute gold. Thanks for awesome analysis.

 

Formatting wise, your white headline banners merge into the white background of the mobile\tablet, making the headlines impossible to read.

 

Thanks for letting me know, I didn't realise it, still getting used to the new B&C which I believe to be a genuine improvement, but I've yet to learn its intricacies.  Really terribly sorry about this, Brother, and to all others who had the same issue.  As a stop-gap measure, I've fixed this thread with at least some red font on the white banner headlines.  I used to be a web dev, I'd actually test my pages on different browsers (remember Netscape) for this reason.  This is an embarrassing slip-up on my part.

 

Will be back probably in the next 24 hours on the outstanding U.S. issue.  We don't get direct visibility into GW's American business (for that matter, we don't even get it for the UK, in different parts of the report sometimes UK is a separate entity and others it's part of Europe), but we do see North America numbers.

[GreenScorpion]

As usual this thread is an interesting insight into things.

 

One issue I see with things like Warhammer+ is the audience and how to increase subscribers beyond those already in the hobby.

Using my country as an example, in Portugal we already have a large number of streaming services available, although they typically take longer to appear than in other locations and the content available might not match what is available in the UK or the US for example. This is partly due to the fact that some content needs voice overs to be recorded in Portuguese with local actors or translator to add the subtitles to the movies/series and also because the Portuguese market is not one of the major ones, so we tend to be second, third or + waves in terms of releases.

 

For this particular example lets use the Disney+ service to help demonstrate the situation here. Even before the service was available, there were several ads on TV and elsewhere about the upcoming service and some of the content.
After some initial promotion, they have kept putting ads on regular TV and some of the cable TV companies are even using the offer of the Disney+ service for "free" as a promotional thing to get more customers.

The thing is that Disney is widely known and so as soon as the ad campaign appeared, lots of people went to check what was offered and the overall cost compared with the previous streaming services available.

GW lacks the media presence of Disney and while the IP is certainly interesting it is a niche and the comparison between the content provided by Warhammer+ and other streaming services is not something that favours the current service, especially when the base prices per month/year are somewhat similar.

 

To get Warhammer+ to make more money, GW would need to invest in ways to get a larger fan base but also increase the content enough in terms of variety/quantity that people see it as a more appealing subscription, even if they are not fully into the miniature part of the hobby.

The issue is that the upfront costs of setting up a streaming service that looks good to non-warhammer fans are not small and the other methods used by GW to get the hobby out there are not necessarily linked to Warhammer+, being mostly based on those kits for newcomers that they have shown from stores and school related projects from the UK.

For example, to get most of the Portuguese population to subscribe, some subtitles in Portuguese would be required, things would need to be advertised on TV, social media and other high visibility locations, which is something that GW is not capable of doing on a country like mine.

If Conquest had done well in Portugal things might be easier, but the way the local distribution was handled and the poor translation work of the magazines accompanying the issues reflected badly on GW from what I could tell locally.

 

Things like Conquest and Imperium could easily serve as tie-ins to Warhammer+ and Black Library, with some publicity on the magazines, but as mentioned the translation work would be required for most people in my country to even care about such topics as English is still far from being considered a pleasant way to read for most in my country.

 

If we extrapolate this into other parts of the globe, we get similar issues, advertisement in general purpose communication means, translation of content to the local language and methods to attract people who might not care about the miniatures but are interested in the universe.

 

Obviously this is just a high level view of things and I know @N1SB and a few others can certainly add a few more insights or make some corrections to my statements, but I think that in short Warhammer+ needs to be popular enough to be extremely profitable and that might be an investment that GW is not yet willing to make.

[N1SB]

Brothers, I think I've made a huge mistake, sorry

 

 

Upon realising my mistake, I wanted to own up to it 1st.  It's an oversight that affects Autumn 2022 for this report, and actually Summer 2016 (AoS year).

 

TL;DR - currency exchange rates whiplashed with the British pound sterling had a huge impact on GW's Revenue, making it look far bigger than it is.

 

As discussed this half-yearly report in particular, Revenue isn't just money, it's also a measure of the popularity of The Hobby; that's why we care.  As a result, it's actually not a good sign at all for The Horus Heresy, but GW is still holding onto its biggest guns...the Imperial Guard, World Eaters, Arks of Omen...for the rest of this year.

 

We wisely avoid political topics on B&C.  Even for things regarding financial matters like GW's performance, that's usually okay...politics' impact on business is far less than politicians want to claim.  However, 2 political moments happened in Summer 2016 and Autumn 2022 that dramatically lowered the value of the British pound, the native currency for GW.  Because GW does so much business outside of Britain now, like how the US has effectively overtaken England as GW's biggest market, it made GW's Revenue look a lot bigger.

 

Because we avoid talking about politics, and rightly so, and the fact that GW's been growing rapidly even without this weird currency distortion, it usually doesn't matter...except THIS half-year.  All the growth I saw could be attributed to these exchange rates rather than actually more sales.

 

I discovered this because I was looking into the North American situation.  All indicators looked good, I was confused for the past 2 nights!  Until it's 1 line on the top sheet about Revenue at constant currency.  That basically said, "Everything you're about to be told is a lie."

 

Edit - to be clear, that's just a reference to the tagline from the old =][=nquisitor game.  The CEO is very upfront, that's why he's been disclosing so much, basically saying "the numbers look good only because of this currency skew," without referencing politics.

 

As both penance and just trying to get to the correct understanding of things, I'm going to review everything as far as I can, to 2006 if possible.

Edited January 18, 2023 by N1SB

[Captain Idaho]

 

20 hours ago, N1SB said:

As a result, it's actually not a good sign at all for The Horus Heresy

 

So are you saying the HH wasn't the success we wanted it to be?

[skylerboodie]

I always value your insight- and honesty - NS1B

 

The part of your initial analysis that confuses me is this bit:

On 1/10/2023 at 11:23 PM, N1SB said:

This COMPLETELY explains the 5.8% Trade price increase.

 

GW's current gross profit margin is 64.1%.  The Trade price increase is 5.8%.  64.1% + 5.8% = 69.9%...or almost exactly 70%.

 

Surely the trade increase is only on the trade portion, not overall (retail, online, trade), and is also talking about sales not profit. So, I'm not sure how adding a price increase percentage [potentially could be considered all profit, if all increasing costs etc are considered in the pre- price rise revenue / gross profit margin, and this is just extra 'income for nothing'] for one portion of the business can be added to the overall gross profit margin of the whole business to arrive at the intended 70% target; surely that's not adding apples to apples? Might just be my misunderstanding.

 

[WrathOfTheLion]

1 hour ago, Captain Idaho said:

 

 

So are you saying the HH wasn't the success we wanted it to be?

Could be not the success that we wanted, but given the statements in the financial report, it was the success GW wanted.

 

They sold out of every kit they had for months, in my opinion, they hit essentially whatever the cap of what money they could have made on it.

 

I don't think the decrease in pounds all that much matters outside of certain regions' purchasing, but I'd need to see the formulae. It's certainly not going to be on the order of a 25% swing in their revenue. What it would mean though, is that the US sales that are flat, really are probably a bit of a decrease, as US sales are going to be more lucrative.

 

Actually if it's in constant currency, then that would be normalized and US sales should be normal. The actual money they made would probably be a bit higher when they moved it back into GBP. Essentially, if I read right, the revenue in constant currency should be all pegged to some value prior to any currency shift that happened during the half.

Edited January 19, 2023 by WrathOfTheLion

[Xenith]

On 1/19/2023 at 1:31 PM, WrathOfTheLion said:

They sold out of every kit they had for months,

 

I think that this is the best indicator for their expectations - they want to make money, they make as many kits as they think will sell, however they vastly underestimated the popularity, and as a result things were out of stock for months. The last time we seen this was around the start of 8th, where kits were suddenly popular and were OOS for 3-4 months at a time, and look what happened to the stock price.

 

Even now, just see how many people complain about the difficulty in getting hold of FW Legion transfers? From that I'd say HH was doing better than they expected. 

[Noserenda]

Often that's from not having enough stock or poorly anticipating demand or even scalpers in the case of things like transfers. I'd heard from one of gws warehouses that the whole thing was full of AoD boxes and an insanely small number of rhinos for example.

 

So not to say things aren't selling well, but selling out can mean a lot of things

 

[Pacific81]

It was acknowledged in the most recent annual financial reports that mistakes had been made in the prediction of sales volumes of different releases, so it could just be because of that.

[Xenith]

Maybe AoS3? I recall it was either my local store or the GW Webstore went out of stock of the AoD box the weekend of release, then they had to shuffle more stock around (pull some from physical stores or 3rd parties?) and it became available direct again. 

 

Admittedly I haven't digested N1SB's correction fully, but it still seems a good year for GW? 

[Richard_Allen]

On 1/11/2023 at 1:23 AM, N1SB said:

Disclaimer: please do not take this as investment advice or an endorsement of Games Workshop.  I have no professional ties with them and hold no stock.

 

As required by laws and by-laws, GW has released its Half-Yearly Report.  The period it covers is from last June to end of November, right after the release of HH 2.0:

 

https://investor.games-workshop.com/wp-content/uploads/2023/01/2022-23-half-year-report-final.pdf

 

I just want a moment to digest this.  It'll be a very telling snapshot of HH 2.0's adoption, whether it's more like a new 40k increase (huge growth) or AoS (small bump).

 

1st Edit - thanks for your patience.  I've more I want to go through, but I wanted to post this before I get some much-needed sleep.  I'm excited.

 

2nd Edit - adding a disclaimer not to take my words alone as investment advice.  Then an addition to Warhammer+ profitability GROWTH.

 

3rd Edit - shortened everything, added a graphic to illustrate how I am thinking of GW's now 3 flagship products...you'll know it when you see it.

 

 

Executive Summary

 

 

Edit - Analysts are likely overlooking 1 story of GW's performance this half-yearly, they're not missing the forest for the trees; they're missing an important tree in the forest.

 

That tree is the popularity of the Horus Heresy as a game.  Beyond Bolter & Chainsword's interest in hot Marine-On-Marine action, this has real significance to GW overall.

 

40k is GW's clear flagship leader.  When our Hollywood Brother, Henry Cavill, announce he'd act/produce a Warhammer series, did anyone even for a split-second muse he'd play...an Age of Sigmar Stormcast?  No, (aside from he plays Custodes and Iron Warriors), everyone assumes 40k as it's what people think of Warhammer.

 

How would 30k compare?  Would it be AoS or just a Specialist Game?  Remember HH 1.0 was quite a niche product, even though popular here on Bolter & Chainsword.

 

I say that not to defend GW as a corporation; I hold no shares, I'm a 30k and 40k player first, last, all over.  What I care about is the state of Warhammer, and it is strong.

 

 

A Picture Worth 10,000 Years...or at least 17

 

 

Before going into more than a hundred centuries the Emperor has sat immobile on the Golden Throne, a recap of 17 years of GW's history...and its personality.

 

 

The 2 lines are literally the Top Line and Bottom Line, Revenue and Profit.  Reading these 2 lines and everything in-between tell you everything about GW.

 

In 2007, Profit-wise GW had a traumatic year...it was loss-making year, leading to painful cost-cutting measures, good people laid off, one-man Warhammer Stores being not just the norm but their business big bet idea.  They had to do it to just survive.  Then it lead to 10 years of stagnation, like the Imperium itself, a lost decade.

 

There are other trends.  Generally, new 40k editions (like 5th ed and 6th ed) would drive Revenue growth...then it'd level off and shrink after Warhammer Fantasy Battle releases.  While I consider the ending the Warhammer Fantasy Battle GW's biggest misstep...I can understand how it went down that wrong road.

 

(I don't say this to disparage Warhammer Fantasy or even Age of Sigmar, in fact, I'm sympathising with them, and look forward to The Old World.)

 

In 2017, there was the biggest business turnaround I've ever seen, bar none WITH...not Gathering Storm, actually.  It was...of all things...Age of Sigmar's General's Handbook.  This was when AoS brought back much-needed points values, BUT that's not the cause.  The cause was GW invested in just some marketing activities again.

 

Revenue shot up, and Profit followed, due to the strict cost-cutting from a decade earlier, basically parallel lines as it's been for years.

 

Consider this: GW says, "We are a miniatures company."  AoS miniatures had been out a year BEFORE this and no uptick, no uptake.  You've heard in Marketing 101 classes that it's not enough to build a better mousetrap, that you got to market it?  This was the case, marketing isn't just advertising, but building that whole market.

 

Such as an in-store Season of War official global campaign, where you earn points for winning special missions in-store, as well as building & painting AoS models (after buying them there, of course)!  Warhammer Community started around that time, then BOOM, things were happening in 40k with the return of a Loyalist Primarch.

 

Looking back at that time, you can see the growth was mainly happening at the FLGS and Warhammer Store level, because that's where you had to go to contribute to this official global campaign.  Then you see GW do all the stuff at stores, store celebrations with limited edition minis, Armies On Parade, free minis every month!

 

Since that worked, then came the Gathering Storm and 40k 8th ed, the same playbook as AoS with the Konor Campaign, and we were off to the races.

 

Revenue continues to grow at record levels, but in 2018 to 2020, Profit took a hit...because GW took this chance to expand now that it's got some money.  It was the right move to invest in its own future by building up the business infrastructure it couldn't in the past...but then Covid hit, then the effects of Brexit, now the war in Ukraine.

 

TL;DR - GW had a really bad 2007 that keeps it very frugal, then a turnaround when they restarted their marketing engine back up.

 

 

What We Suspected About Trade Prices Was So Spot On That It's Actually Kinda Dumb

 

 

Recently, we heard the bad news that at the Trade, i.e. FLGS wholesale price level (where they buy the minis to sell to us), GW announced a head of time an increase of 5.8%.  Just a humble reminder that the actual retail price they sell at might not be at that same amount, but yeah, it sucks, for us, even more so for these small businesses.

 

There was a thread about it and I assumed it was about increases to fuel costs impacting gross profit margin, which go into plastic raw materials and electricity.  

 

 

It's mostly fuel prices, then stuff I didn't anticipate.  It's plastic (materials increases for a petrol-based byproduct), carriage cost (transportation...well, that's petrol, literally fuel prices), increased staff costs (hey, new sculptors, sweet), incremental cost of new facilities (more electricity, i.e. fuel prices), inventory (minis made, stockpiling in warehouses).

 

So you see a lot of numbers there...down 4.5%, materials increases 1.9% of core sales, etc.  All you need to know is 1 number: 70%

 

70% is the target gross profit margin that GW set for itself, from its many previous reports.  The term just means, for every $100 it makes from you, it wants $70 in profit on something it made for $30.  Gross profit margin matters to manufacturers, to make stuff they can sell without losing money.  This COMPLETELY explains the 5.8% Trade price increase.

 

GW's current gross profit margin is 64.1%.  The Trade price increase is 5.8%.  64.1% + 5.8% = 69.9%...or almost exactly 70%.

 

(Btw, you know what other company has 70% gross profit margin?  LVMH.  What does that stand for?  Luis-Vuitton fashion, Moet champagne, Hennessy cognac.)

 

 

On a More Serious, Sensitive Note To Our UK-based Brothers

 

 

This isn't political, just mentioning countries, because many of our Brothers here don't live in the UK or in Europe.  Their economic meta is different.

 

Even before that thread about 5.8% increase in Trade prices, I was looking at OECD forecasts for Europe.  It's like...sports scores for a game that affects us all.

 

The OECD reports are basically the Metawatch for economics.  In this Covid era (just when you think it was over, China is opening up from its Zero Covid policy), they were trying to gauge which countries would get out of the pandemic-induced recession best:

 

• France was the clear leader (I thought it was bias, as OECD is based in Paris)
• The UK and Germany were the clear losers

 

Initially I reckoned it was about Brexit, then I saw another report based on something else, it was about the environment and renewable energy, sustainability and stuff:

 

• France has a glut of nuclear power plants for its population size*
• The UK and Germany were the most dependent on Russian natural gas, now affected by sanctions

 

* Note: so my Warhammer/D&D friend, ControllEric (so named because he played a Controller Wizard in D&D, and plays a Financial Controller in real life), explained to me the French government built nuclear power plants after the '70s energy crisis.  Guess that really paid off for them after 50 years.

 

GW's problems are just a microcosm in the midst of all this, so it's worth seeing the big picture.  On that note, while we complain about Warhammer prices, as is our God-Emperor-given right, dammit...but somewhere in Europe real people are dying in the cold, in a war.  Not political, just perspective.

 

 

HH 2.0 Off To a Better Start Than I Expected

 

 

As before, GW's full Fiscal-Year starts in June, so this Half-Yearly covers the HH 2.0 launch, not Christmas, no Arks of Omen, no Rogal Dorn tanks, etc.

 

HH 2.0's success wasn't guaranteed.  We're Bolter & Chainsword, so we gotta Check Our Priors on our feelings, emotions, hype around HH 2.0.

 

Do you remember how small HH 1.0 was?  Sure, we were excited when Lady Atia, Brother Mr. Parker, Brother Valrak and others went to a HH Weekender.  But outside of our little bubble, HH 1.0 was a very niche thing.  GW does not (likely by design) break down its revenue by product lines, but they sometimes slip up like this back in 2016's Financial Report:

 

 

(I want to apologise to our Brother who worked this out properly, I only remember how I did it with a back-of-napkins math.  We lost his post in the forum reshuffle.)

 

2016 was right before GW's meteoric rise, so it was making excuses for a Revenue drop in Mail Order, saying how FW's growth compensated for a decline with their normal plastic (Citadel) range.  Back-of-napkin, for FW's 28% increase to offset a 12% decrease, that means FW was around 30%, and Citadel about 70% of Mail Order.

 

2016 was also before the new Blood Bowl, Newcromunda, etc., so FW really meant HH 1.0.  For those that played AoD, this was around Book VI: Retribution, focusing on the Shattered Legions.  Mail Order was around 21% of GW's overall Revenue.  30% of 21% means HH 1.0 was only roughly 6% of GW's total business.

 

30k players would say, "That's ridiculous, my AoD army cost 10x times than my 40k one!"  You're right...HH 1.0 was much more expensive, which only means the number of actual players was even smaller than that; we weren't even 6% of the population, maybe just 0.6% that spends 10x more.  We were a tiny, yet very passionate, minority.

 

So before reading this half-yearly report, I was hoping, HOPING, we'd be close to AoS levels of popularity.  30k's a niche game, a spin-off.  So I looked at the half-yearly Revenue periods associated with edition launches, just as an indicator, understanding obviously not all sales were tied to launch titles, but still useful comparison points:

 

• When AoS GHB came out, half-yearly grew £15.6 mil more than the previous HY
• Then 40k 8th ed came out, HY grew £38.0 mil more than that period
• And AoS 2nd ed came out, HY grew £15.3 mil more than 40k 8th ed
• But 40k 9th ed came out, HY grew £38.4 mil more than the previous HY
• Then AoS 3rd ed came out, HY only grew...£4.7 mil?  I just checked...this was bad

 

A Finance professor would never teach this shorthand, but you see the common sense pattern, right?  Usually, an AoS edition grows Revenue from the last comparable period by ~£15 mil.  40k is the star player, every time it appears, add ~£38 mil, more than double AoS's gains.  So where does HH 2.0 rank?

 

• Now HH 2.0 has come out, HY grew £20.8*, or even MORE than any AoS ed

 

* Note: to compare like-to-like, I've omitted Licensing revenue, as that's quite big now, focusing only on Core (i.e. miniatures) Revenue.

 

 

What I said above is very back-of-napkin maths, but imagine this.  GW's Revenue growth is like a mountain, going higher and higher.  There's always some background sales of everything, like growing piles of snow.  On top of this stand the product launches (Primaris representing 40k, Stormcast for AoS, Beakie for 30k).  Well, they're on a slope, they're standing on snow, and I'm trying to gauge their height and it's not perfect...but you get a pretty good idea one's bigger than the other, etc.  Thus, a 40k launch isn't £38 mil of its various Starter Boxes, but it's like £30-something + a few million pounds of all of GW's other products, but whatever it is, it's BIG.  It's only useful for eyeballing relative sizes.

 

In terms of game rankings, 40k is still top dog, then 30k, then AoS.  We weren't close to AoS, we exceeded past them.  This is honestly impressive to me.

 

But here's why HH 2.0's success is more than just about 30k, AoD, the HH novel series, Primarchs in a movie, etc.  Investors honestly should appreciate this...

 

 

Don't Think Business, Think "Devastator Doctrine"

 

 

HH 2.0 is the missing piece of GW's release schedule.  They have 3-year flagship product life cycles now: 40k, then AoS, then...blank.  HH 2.0 fills the blank.

 

To compare, the recent Balance Dataslate allowed Adeptus Astartes armies to keep the Devastator Doctrine beyond Turn 1, often the best one for, say, Iron Hands.  Well, what if the opponent keeps his army in reserve?  That crucial Turn 1 you got nothing to shoot at, you just wasted your best turn.  You want constant IH Dev Doctrine.

 

I'll pull up the Jan 2023 chart again...I really can tell GW's whole story with this one picture:

 

 

Despite what movies and cartoons show, Wall Street hates spiky graphs; they want a straight upward line, like when every year is a good year, not great years followed by bad.  You know how when Power Fists went from d3 Damage to a flat 2 Damage?  It's less vulnerable to risk, something you can plan around.

 

40k, starting with 8th ed, is like an IH army using its Devastator Doctrine, it scores the most Revenue.  Then it's forced to move off it to AoS which, like the Tactical Doctrine that follows, is ok, I guess.  After that there was a filler year, let's sell some new Contrast paints, that's kinda like the Assault Doctrine, wasted on IH.

 

It was you guys that showed me how to talk about this.  A company has to pay its bills and employees regularly, because we have to pay our own bills, our own rent regularly.  A GW employee doesn't suddenly eat twice as much on a 40k launch year, then just fast during a filler year.  IH Devastator Doctrine, every turn, every year.

 

Anticipating the question, wouldn't 30k cannibalise some 40k business, and wouldn't that be an issue?  Maybe, but it's not a problem, and you may want that.  So GW has had sold out minis, sets, etc.  That's because it has too much demand at 1 time, exactly the type of risk I'm talking about.  They can spread it out, smooth out that line.

 

So you already know 40k 10th ed is launching later this year.  I think next year is AoS + The Old World, because AoS needs a bit of help to straighten that line, what with HH 2.0 outperforming it.  Then year after that it's HH 3.0.  Btw, if Wall Street understood any of what I said, it'd ask, "Hey, GW, can't you launch a new 40k ed EVERY year?  Why not?"

 

 

Warhammer+ Numbers Were (Not) a Surprise

 

 

 

I remember we were collectively trying to figure out Warhammer+ subscription numbers last year, around this very time.  We concluded: around 100k subscribers.

 

Note - I actually found my post about it, but there was a longer discussion before this.  Sorry about the formatting, it was from before the forum revamp.  The TL;DR is, either by views ÷ number of videos or revenue from an odd line item that represented only 3 of 12 months of subscription, we sussed out the 100k number together!

 

 

So the actual number being 115k is not a surprise...yet it is.  After a whole year, Warhammer+ grew only around 15% (or not at all, if we guessed too low last year)?

 

The Revenue is nice.  Another Brother already pointed it out, £3 mil in 6 months is £6 mil a year, which would be a really great Licensing deal (£14.3 mil this HY, £28.6 FY).  The difference is that Warhammer+ should be more reliable, it's a subscription, it's kinda already banked in, whereas GW's Licensing team has to chase every deal.

 

But Revenue growth isn't just about money; it's also a measure of more people being interested in Warhammer, the Hobby, to the point they'll subscribe to a streaming service.  Not every potential fan can build a model or paint it, but most people can watch streaming videos.  Have we already reached everyone that we could?

 

Edit - Profit-wise...it's curious, £2.4 mil cost for £3.0 mil back, that's like 20% gross profit margin.  I just did a song and dance saying GW wants a 70% gross profit margin like LVMH.  Of course, this is a fixed cost issue; if GW paid £2.4 mil and got 1 million subscribers worth £30 mil, that's worth it and that's the attraction of digital content, it's all profit.  However, as Hobbyists, I expect and I saw you guys talk about wanting more content...but how can GW create that without having to pay even more, without a clear increase in subscriber base?  Netflix was running a loss for a long, long time, and just in the last year laid off a lot of staff.

 

I've raised similar concerns with Black Library revenue.  It's a very consistent number, meaning it's the same core of hardcore readers year in, year out.

 

 

I'll Look At GW's US Growth Later

 

 

I may edit this later to share what I've learned.  My concern is probably same as the financial analysts: as with Warhammer+, what if we already peaked in the US?

 

Speaking of America, even though it's not directly 40k related except for 1 licensed collectible card game, you probably heard about this...

 

 

Wizards of the Coast (Dungeons & Dragons, Magic: the Gathering) Investor Call

 

 

Brothers Triszin PLEASE do not delete this bit, WotC is making 40k: the Gathering Commander Decks, it's relevant!  Also, GW started out by selling D&D.

 

Edit - I've also shortened this significantly, because I asked the mods not to, but I feel a lot of it is off-point now.  Recently D&D made a lot of (negative) headlines.  

 

Brother Schlitzaf kindly DM'd me a month ago on a UBS Investor Call, an informal but informative affair.  It wasn't technically about WotC, but they were the focus.

 

Have you ever wondered how Warhammer compared to D&D, or M:tG, or Pokemon Cards?  Here's some easy to remember rules of thumb:

 

• D&D Revenue is only (heh, "only") about $100 to $150 mil (or around where GW used to be in the past)
• GW in comparison is £400 mil going to £450 mil, and growing
• WotC, through M:tG and Pokemon cards, is about $1 billion (including the D&D bit)

 

Again, this is just to put things into perspective, like comparing points values between units.  GW isn't the evil empire that WotC can be.

 

D&D has the most insane yet obvious example of the 20/80 rule ever, where 20% of customers make up 80% of Revenue or Profit.

 

Do you guys play D&D?  I got a group of about 5 guys.  1 person is our Forever Dungeon Master.  He buys all the books.  The rest of us are Freeloaders.  I never thought of this before, yet it is true of every D&D group I've been part of.  The DM pays for EVERYTHING, we just show up to his place with Mountain Dew.

 

Thus, WotC is trying to sell a virtual online D&D service, One D&D, where not just the DM but every player is a subscriber.  They'll even offer heavily discounted or free adventure modules and campaign books (they already do this with their online Beyond D&D service, I just ran a free Spelljammer 4-session campaign...I'm not the 20%).

 

The point is, they'd rather gain low regular subscription Revenue each month rather a big purchase spike with just 1 customer.  Devastator Doctrine, every turn.

 

Here's where it ties into Warhammer.  80% of D&D players are Casual that can be grown to be Hardcore.  80% Warhammer players are all already Hardcore.

 

So when I see things like Warhammer+ not really growing, it's like, we've got no one left to convert.  It's not growing in North America, have we already reached every potential Hobbyist?  Is it that small a pool?  So even if we get an Amazon Prime Video series, will it not popularise The Hobby more than it already is?

 

 

Final Words For Now

 

 

Not the 1st time I've made these long post, but I should have always said this.  These financial reports are GW's.  The Hobby is ours.

 

I end where I began, Revenue and Profit.  Revenue is interesting to us because it happens to be a measure of Warhammer's popularity, how many players, how passionate they are.  Profit is important to GW because it is literally their Victory Points...that's their problem.  We neither need to cheerlead nor turbo-Karen GW.

 

HH 2.0's higher than (I) expected launch is imho a great sign for The Hobby for many reasons.  I do worry about the absence of uptick and uptake of Warhammer+.  It's not just about each product line/streaming service, it's that they're both indicators to something broader about The Hobby, the litmus tests.

 

 

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It's clear that Horus Heresy 2.0 has exceeded expectations, surpassing even the performance of Age of Sigmar. This is an impressive feat and suggests a strong interest in the 30k narrative, the Horus Heresy novel series, and Primarchs making their way into movies. Beyond being a success for 30k players, it's also strategically crucial for Games Workshop, filling a gap in their release schedule.

Edited December 28, 2023 by Richard_Allen

[Captain Idaho]

Whilst no company can always fully predict the future all the time, one of the crucial capacities of any business is to accurately predict demand.

 

The repeated and widespread failure here by GW means one of 2 things - either critical incompetence or a persistent supply issue.

 

Since GW wants to make money and this is a modern problem rather than historically accurate, I'd say it's likely the latter.

 

On a personal anecdotal level, local toyshops and 3rd parties to myself have said stories about supply chain issues that are wider, so my experience supports the hypothesis for me.

 

GW are making great money, but there is definitely a supply and production issue wider they are dealing with. It's possible it's to do with lack of facilities etc, but we know GW was building these a few years ago, so I doubt it's to do with that.

 

I'm not in the industry so the details as to why this is happening isn't known to me at this stage.

[N1SB]

2 hours ago, Richard_Allen said:

It's clear that Horus Heresy 2.0 has exceeded expectations, surpassing even the performance of Age of Sigmar. This is an impressive feat and suggests a strong interest in the 30k narrative, the Horus Heresy novel series, and Primarchs making their way into movies. Beyond being a success for 30k players, it's also strategically crucial for Games Workshop, filling a gap in their release schedule.

 

Brother Richard, I owe you an apology.  I never edited my Original Post, that's on me.

 

TL;DR was, at 1st I thought HH 2.0 did really well, but I've since realised it was due to currency issues.  I've edited my post and pasted here for your convenience:

 

MAJOR EDIT, pre-Christmas 2023: I previously made an error with the following.  HH 2.0 launch period NOT as successful as previously thought because it was inflated by currency issues.  It happened this Half-Yearly Financial Report happened just after a very short-lived mini-budget in the UK that crashed the currency.  Low British Pound (£) value artificially made GW's Revenue look bigger than it was.  Easier to show than explain:

 

 

So notice here there's a few "revenue"-related terms, but the important one is "Revenue at constant currency."  GW arranged this to present a real pretty picture.  Core revenue is The Hobby, the miniatures and books and what we consider Warhammer, that grew like 10%.  Licensing revenue is like GW's royalties from Warhammer-branded video games, which fell a bit and is perfectly normal because that's dependent on other video game developers.  But when you look at "Revenue at constant currency"...it's unchanged.

 

Like three quarters of GW's business is outside the UK now, using other currencies like US dollars.  When the British Pound fell precipitously, those other currencies looked much more valuable in comparison...that actually bloated up GW's revenue figures, see.  HH 2.0 clearly did grow things a little bit (to make up for lower licensing revenue), but it was not a huge performer.

 

We're about 2 weeks away from the Half-Yearly Financial Report for 40k 10th ed.  I'll be on the lookout for this...I actually imagine 10th ed to have grown a bit more than HH 2.0, and I definitely think the supply bottleneck of GW being limited to its Nottingham plant has capped out its growth.  Not hyperbole or gloom & doom, just the reality of so many things "Not currently available".

 

Basically, it was a political mini-budget that threw these numbers in a loop.  It just happened the report came out around that time.

 

Hey, sorry about the confusion.  HH 2.0 DID grow the business, yes, but it was a little bit less than AoS had, I reckon.  The exchange rates screwed with the numbers a bit.

 

And I most strongly agree with you on how HH 2.0 fills a gap in their release schedule.  Like GW's entire groove is to release something every summer, I hear ya.

Edited December 21, 2023 by N1SB

[Scribe]

15 hours ago, N1SB said:

I'll be on the lookout for this...I actually imagine 10th ed to have grown a bit more than HH 2.0, and I definitely think the supply bottleneck of GW being limited to its Nottingham plant has capped out its growth.  Not hyperbole or gloom & doom, just the reality of so many things "Not currently available".

 

Will this be able to be definitively determined in the data offered? I have to agree that the impression I get is they have reached the peak of their throughput of product.

 

I was in my FLGS the other day, chatting with the boys and the owner, and its simply not possible to get some things, sometimes for months on end. Thats not an ideal situation for growth.

Edited December 22, 2023 by Scribe

[Joe]

Until Nottingham City Council get their act together there's very little Games Workshop can do beyond possibly up-rooting certain facilities and moving them around the country, although I imagine they'll be incredibly reluctant to do so; the benefit to remaining in Nottingham is easy access to the wider wargaming industry and the talent therein, coupled with keeping design, production and distribution all relatively close-by for ease of communication.

[Stitch5000]

3 hours ago, Joe said:

Until Nottingham City Council get their act together there's very little Games Workshop can do beyond possibly up-rooting certain facilities and moving them around the country, although I imagine they'll be incredibly reluctant to do so; the benefit to remaining in Nottingham is easy access to the wider wargaming industry and the talent therein, coupled with keeping design, production and distribution all relatively close-by for ease of communication.

Nottingham, nor the locale that GWHQ is situated, is hardly devoid of potential property....