Submitted by loose-ventures t3_119ywnp in wallstreetbets
Hogwarts Legacy is the latest blockbuster videogame released by WBD and is breaking numerous videogame sales records within the first few weeks of release.
You nerds are going to make WBD execs a lot of money
Overview
Hogwarts Legacy's physical sales have already outpaced Elden Ring by 80% while digital sales are outpacing by 56% as of this morning (source 1, source 2). Assuming a blended 65% increase over Elden Ring's sales at an assumed $65/unit sold (many special editions have been purchased), the game has generated a rough estimate of approximately $1.3B in the first two weeks of release.
There are no known major issues with the game (some bugs present on Steam but no more than typical) and once it is clear the game is a hit among fans and the development is solid, the sales momentum should continue. Additionally, this momentum will likely see some benefit from the release of Hogwarts Legacy on PS4, Xbox One, and Nintendo Switch at later dates:
Overall, Hogwarts Legacy will probably generate at least $2B in revenue for WBD within the first year of its release. The massive success of this game will open the door for more opportunities to expand on the Harry Potter franchise potentially including DLC for the game and possibly, a new movie.
FY23 Estimates
source: https://app.tikr.com/ (you need to sign up but it's free)
WBD is currently trading at a discounted 0.75x P/BV with a forward FCF Yield of 5.7%. Estimated sales for WBD is $44.2B for 2023 (2% growth YoY, median of analyst estimates from Bloomberg, sourced from https://app.tikr.com/) which surely includes Hogwarts Legacy sales but this estimate is probably a bit conservative based on very strong sales figures so far.
If WBD guides for an extra $500MM to $1B in sales for the year based on initial sales, this would imply a 3-4% increase in total sales (vs 2% estimate) which for a stagnant company like WBD, is a fairly big deal. Profit margins for new big name VGs can approach 50% or higher so with at least $2B in sales, at least a $1B increase in FCF seems realistic and would bring WBD's FCF Yield up to a favorable 7%.
TL;DR - Focus on FY23 guidance, not past results!
- Hogwarts Legacy will generate at least $2B in sales in its first year
- WBD will likely increase revenue and earnings guidance for the year based on Hogwarts Legacy's strong sales so far
- Mgmt will want to further leverage the Harry Potter franchise given the massive success of the videogame with potential for DLC, another movie, or even a tv series (a la Disney)
- Markets are not yet pricing in the sizable revenue and FCF increase Hogwarts Legacy will contribute with WBD trading at a discounted 0.75x P/BV
My Position:
WBD has earnings AH today and I'm in the 17C expiring tomorrow, June, selling 14P exp March, and am holding shares. In case you don't know what to do, here's a chart giving you terrible instructions:
| Investor Type | Trade |
|---|---|
| Boomer | Buy shares or 20C LEAPs, wait at least a few quarters for increased sales to be baked into stock price |
| Thetagang | Sell OTM or ATM Mar puts based on risk tolerance, get assigned at a lower price or make 50-80% annualized return |
| Degenerate | Weeklies baby, might I suggest the delectable 17C or 20C. Could also be less degen and buy June |
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