- Amazon tie-up is potentially huge
- Forecasts unchanged for now
- Expert highlights one ‘big risk’
Shares in Games Workshop (GAW) surged 14.6% higher to £83.65 after the fantasy games and miniatures maker announced a tie-up with Amazon (AMZN:NASDAQ) for the latter to develop the former’s intellectual property (IP) into film and TV productions, starting with the Warhammer 40,000 universe.
While the deal, which grants Amazon the associated merchandising rights, is potentially game-changing for Games Workshop, it is too early stage to impact forecasts and there is no change to guidance for the year to May 2023.
‘MATERIAL’ COMMERCIAL TERMS AGREED
‘In advance of contracts being entered into’, said Games Workshop, ‘Amazon will be commencing certain development activities (such as holding preliminary discussions with writers) in order to facilitate the project.’
The statement also noted Games Workshop and Amazon have reached agreement on ‘material commercial terms’, though the exciting project is ‘wholly dependent on and subject to contracts being agreed and entered into, which the parties are working towards.’
LICENSING BUZZ
Much of the buzz around Games Workshop in recent years has been built around the licensing opportunities associated with the Nottingham-headquartered company’s IP, which has a large and very loyal fanbase.
For Games Workshop, a high quality business with chunky gross margins and high and sustainable returns on capital, developing this area of the business generates extra revenue and cash flow for a relatively limited extra cost.
And while Amazon will be granted the relevant merchandising rights, the tie-up could deepen fans’ connections with Games Workshop’s table-top gaming products and bring them to a wider audience.
EXPERT VIEWS
Jefferies analyst Andrew Wade described the Amazon deal as ‘very exciting news’ for Games Workshop. ‘Licensing income has built strongly in recent years,’ explained Wade, from £2 million in full year 2015 to a forecast £17 million for the year to May 2023, ‘but we saw a more limited progression ahead, believing that only a major film deal would support another step-change.
‘With today’s news, that is now a very real possibility. Moreover, a mainstream TV/film product could be game-changing in terms of Warhammer’s brand reach and awareness. Pass the popcorn.’
Russ Mould, investment director at AJ Bell, said: ‘There have been modest efforts in the past to bring Games Workshop’s creations to the screen. Amazon’s deep pockets and its huge reach, more than 50% of British households have an Amazon Prime account, puts this in a different stratosphere.
‘The deal is not signed and sealed yet but, barring a last-minute hitch, this could be an extremely significant step in Games Workshop’s development.
‘The big risk is that, by almost certainly surrendering any creative control, Games Workshop is at the mercy of Amazon making something which might alienate its existing followers. The mixed reaction of Tolkien fans to Amazon’s recent Lord of the Rings prequel is something to consider.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (James Crux) and the editor of the article (Ian Conway) own shares in AJ Bell.
