Business Breakdowns
· Matt Reustle, Todd Wenning
[00:00:00] S0: It's a very interesting thing that we're starting to see more of. You mentioned the Mario movie, which I can tell you is the first movie I got my son to watch in full. That meant something to me in terms of the nostalgia of playing the game growing up. But also, on another extreme, F1, Drive to Survive, and I think a lot of people are trying to use that as a blueprint. So you can see how that drives additional interest and entryways, potentially for a certain type of buyer as well. So that's quite interesting. On the licensing, I'm just curious, you mentioned it can fluctuate quite a bit. How does that work? Is it just the sense of, if you're licensing a video game, you're going to have that initial bump in year one. But until you release a new game, you're going to have that natural decline curve? [00:00:00] S1: Most of their licensing historically has come from the video game partnerships. And so it depends on when consoles are launched, when games are developed, and so it can be a little lumpy. When it hits, it goes right to the bottom line pretty much. There's very little operating expense related to that. It really just falls to the bottom line. So I'm thinking that as the movie comes out, that will lead to more licensing deals, whether directly from Amazon or from new partners and video games, et cetera. So I think that will remain a very cash generative part of the business for a long time.
· Todd Wenning, Matt Reustle
[00:00:00] S1: Most of their licensing historically has come from the video game partnerships. And so it depends on when consoles are launched, when games are developed, and so it can be a little lumpy. When it hits, it goes right to the bottom line pretty much. There's very little operating expense related to that. It really just falls to the bottom line. So I'm thinking that as the movie comes out, that will lead to more licensing deals, whether directly from Amazon or from new partners and video games, et cetera. So I think that will remain a very cash generative part of the business for a long time. [00:00:00] S0: Just in terms of being UK operated, did the tariff volatility end up impacting them at all? And it's just one of those questions that comes to mind, as you mentioned, origin and having that strong footprint there in the UK. How caught up in all of that activity did it get? And how much does it actually impact the business?
· Matt Reustle, Todd Wenning
[00:00:00] S0: Just in terms of being UK operated, did the tariff volatility end up impacting them at all? And it's just one of those questions that comes to mind, as you mentioned, origin and having that strong footprint there in the UK. How caught up in all of that activity did it get? And how much does it actually impact the business? [00:00:00] S1: So that was some of the concern earlier in 2025. The stock sold off or was stagnant a little bit. The concern was that management said after their annual report came out, they work on a different schedule in terms of their reporting schedule. But when the May report came out, they said we're concerned about tariffs and what the impact might be to our gross margins. And then the stock had a nice jump, a couple of weeks ago because they said in their November report that it didn't impact us as much as we expected. And then we saw this week, so we're talking on January 22nd, we saw when there were concerns about new tariffs, the stock sold off a little bit again. They are impacted by it. But again, this is why the vertical integration helps quite a bit. Not only does it help protect them from IP theft, which is one of their biggest concerns, but also it helps them control their supply and they have complete control of their supply at all times. [00:00:00] S0: You mentioned those gross margins, which to me feel very impressive. Is there any way to contextualize that versus peers? I don't know if there are others that are public that you can compare it to, but I'm curious about that.
· Matt Reustle, Todd Wenning
[00:00:00] S0: You mentioned those gross margins, which to me feel very impressive. Is there any way to contextualize that versus peers? I don't know if there are others that are public that you can compare it to, but I'm curious about that. [00:00:00] S1: It's such an idiosyncratic business that there's really not a ton of good comps. The best comp is the Wizards of the Coast unit at Hasbro, which owns Magic: The Gathering and Dungeons & Dragons. And they have similar EBITDA margins around 40%. This is very lucrative IP and it's very, very difficult to get. You mentioned nostalgia earlier. You can't just create this IP. Let's say you wanted to go out and compete against Magic: The Gathering or Warhammer. I would just say good luck because it takes decades to build up that nostalgia, those deep connections. And importantly, that enables you to pass it down to the next generation. I played this growing up. I'm going to show you how to play it. It's similar to the way we played games with our sons or our children on Nintendo. We played it growing up. We share it with them. Nintendo doesn't have to win them over on their own. We're doing it for them. We're the salespeople. It's just extremely difficult for anybody to come in and compete with these deeply seated, deeply rooted experiences in IP.
· Matt Reustle
[00:00:00] S0: I'm still amazed at that ability to transition from being known for distribution, manufacturing, all of that into building out this world-building, storyline, and all that goes with it because that is such a massive undertaking, and takes such creativity, and a special type of gene. So, more credit to them. I think you see now everybody's just dying to get a Wordle created and there's so much demand for people who can make games like that and get them attached to, let alone this. On the point of where margins go, are there any either headwinds or tailwinds where you expect them to materially change from the level that they're at? Obviously, if you have a mix shift, which sounds like it could theoretically happen in the future if you get more online consumption. But is there anything that you think would materially change that trend line from where they are today?
· Todd Wenning, Matt Reustle
[00:00:00] S1: So on the positive side, we touched on the network effects building, and the manufacturing facilities are high fixed costs. They have more throughput coming through them that should increase margins. The risk, you know, it's really trying to stay relevant because network effects are great when your product's relevant and they can unwind just as fast when you're irrelevant. That is something, I'm always keeping my eye on. Are they staying interesting to their fan base? One of the risks is that they gouge prices, right? They push prices too hard. And that's a common piece of feedback you see online. That doesn't mean people stop buying it, but people are saying, “Hey, this is just getting too expensive for me.” And, so I think Games Workshop does a good job, in my opinion, of stewarding that and thinking longer term. They have a very long-term view. I don't think that they are trying to maximize short-term profitability at the risk of long-term relationships and gains. But that's certainly a risk if they get to the point where they have to raise prices due to inflation, and that just gets out of control for their core customer. [00:00:00] S0: You started looking at it in '19. And that's certainly a tenure at this point in '26 of looking at the business and its history. Do you have any sense of whether it has ever had stretches of time where it maybe went out of popularity or lost some of the luster that was associated with it?