Lesson of ‘Nerd Economy’: Not every popular brand makes investors rich, know the story of Hasbro, Games Workshop

One of the things that the lockdown period gave us was the rise of the ‘nerd economy’, that is, an economy driven by the pockets of fans of games, comics and fantasy. People spent on board games, fantasy figures and card games.- Symbolic photo

If there was any biggest turning point for the ‘nerd economy’, it was definitely the lockdown period. At that time, homebound consumers had ample time and money to spend. But not every company was successful in capitalizing on this opportunity after the lockdown.

In the same emerging market, one company tripled investors’ money in five years, while the other had only 2% returns. The story of Games Workshop and Hasbro shows that the greatest asset of any business is customer loyalty and the ability to maintain product shortages. In fact, one of the things that the lockdown period gave us was the rise of the ‘nerd economy’, that is, the pocket-driven economy of fans of games, comics and fantasy. People spent on board games, fantasy figures, and card games. But not everyone was able to take advantage of this boom equally.

The British company ‘Games Workshop’ and the American giant Hasbro, both were in the same market, but fate and circumstances took them to completely different places. Games Workshop produces sci-fi and fantasy themed miniature figure games. This is such a hobby that once it is started, it never goes away. Hasbro owns brands like Magic: The Gathering (MTG) and Dungeons & Dragons (D&D), which have millions of fans around the world. Over the decade, Games Workshop investors tripled their money, including dividends, and the company joined London’s FTSE 100 blue-chip index. On the other hand, $1 invested in Hasbro at the beginning of 2020 is still only $1.02. That means almost zero returns in five years.

Hasbro’s biggest mistake was not understanding the economy of scarcity. Bank of America analysts said in 2022 that the company was printing too many MTG cards. Due to this the secondary market is getting ruined and the enthusiasm of the players is going down. Some shareholders have even filed a lawsuit against the company this year over this card-printing strategy. Another problem for Hasbro is that it is still tied to the children’s toy business. This includes Nerf Guns, Scrabble and My Little Pony. This market is in difficult times. The division’s sales have declined in 14 of the last 15 quarters. However, the ‘Wizards of the Coast’ division, which makes MTG D&D, had a 51% operating margin in the first quarter and MTG’s revenue increased by more than one-third year over year. But the path to success in the nerd economy is a delicate one. The customers here are loyal, but if they rebel, they don’t hesitate even to boycott. Away from AI, doesn’t care about trends, still great returns

Games Workshop CEO Kevin Rountree told investors in January that none of the executives on his team were excited about AI yet. This week the company had to clarify that the sixth finger seen on their Warhammer Space Marine figures was not AI generated. Despite this, or perhaps because of this, Games Workshop shares trade at 32 times forward earnings. Hasbro, on the other hand, is at just 15x. Nerds don’t follow the crowd. So far this strategy is working.

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