Deep diveTech
Keywords Studios PLC

Keywords Studios full year profits rise over 60% as it continues expansion


Keywords has a buy-and-build strategy and has been expanding rapidly since its first acquisition in 2014.

Keywords Studio

Quick facts: Keywords Studios PLC

Price: £14.00

Market: AIM
Market Cap: £911.1 m
  • One of a handful of billion-pound AIM companies

  • Focused on growing through acquisitions

  • Keywords reported 66% jump in profits in its latest full year

  • Liberum increases target price and retains ‘buy’ rating on the stock

What Keywords Studios does

Keywords Studios PLC (LON:KWS) supplies a range of technical services to computer games developers and publishers.

Some of the services it provides include art services, software engineering, audio services, functionality quality assurance (QA), localisation (enabling games to be published in several languages), localisation QA, and player support.

Among its clients are Sega, Nintendo, Google, Microsoft and Warner Bros.

Established in 1998 it now has studios in more than 42 locations in 20 countries across four continents.

Keywords has a buy-and-build strategy and has been expanding rapidly since its first acquisition in 2014.

What Keywords owns

The list of what Keywords owns is long and will most likely to continue to grow as the company aims to make six small bolt-on acquisitions each year and one or two larger purchases.

Some of its businesses include; Babel Media, which provides testing services to game developers; Kite Team, a provider of localisation and audio services to Latin America and Spain; and Alchemic Dream, a Canada-based business that supplies multi-lingual customer support services to the video games industry.

Others include Reverb, a Brazilian firm that the provides localisation and audio management services to games developers; Volta, a Quebec-based firm that supplies major games companies with outsourced art creation services; and Enzyme Testing Labs, a Quebec business dedicated to the functional testing of applications and video games.

Sonox Audio Solutions is the group’s Spanish firm that supplies audio services to game developers.

In China, Keywords owns Mindwalk, which provides outsourced art creation services to the video games industry, and Red Hot CG, which specialises in the production of graphical art assets for video games.

In France, businesses include localisation firms Arsec SAS, La Marque Rose SARL, Dune Sound and Around the Word.

Elsewhere in Europe there is Synthesis, an Italian company that provides localisation, audio and testing services to the video games sector. Another Italian business includes Binari Sonori, which offers translation and voice-over services for games developers.

UK-wise, Keywords owns Liquid Violet, a voice production and casting studio; Player Research, a user testing and research consultancy;  SPOV,  a London-based animation and digital design firm; d3t, a video game software developer; and  XLOC, which develops a web-based content management system that can be integrated into any major 3D game engines.

Across the pond, GameSim is a US company specialising in outsourced video game localisation, art and sound, as well as providing live support services for gamers.

Other US-based firms are Sperasoft, which provides game development, art creation and software engineering services; video game art services company Liquid Development;  and VMC Consulting, a leading video games beta tester.

LOLA is a Mexican firm that provides Latin American Spanish dubbing, localisation and sound design services with clients including Warner Bros and Ubisoft.

Last year Keywords continued to expand through acquisitions by purchasing Sao Paulo audio studio Maximal Studio, music composition firm Cord Worldwide Limited, music services business Laced Music Ltd, arts services firm Fire Without Smoke and audio company Blindlight.

It also bought creative and technical services provider Snowed In Studios, artificial intelligence firm Yokozuna Data, engineering services businesses Electric Square and Studio Gobo, art services provider The TrailerFarm and Sunny Side Up Creative, which supplies marketing services such as game trailers.

In the first quarter of 2019, Keywords bought Dutch-based cloud software platform GetSocial, which provides a comprehensive and robust suite of functions that enable games developers to manage all social interactions between their game, their players and their friends' networks.

More recently, it has added Japanese mobile games developer Wizcorp and Canadian audio description firm Descriptive Video Works to its ever-growing ranks.

Inflection points:

  • In its full year results for the year ended 31 December 2018, Keywords posted a full-year adjusted pre-tax profit of €37.9mln with revenues of €250.8mln, representing increases of 65% and 66% on the prior year, respectively
  • The company hiked its final dividend by 10% to 1.08p per share taking the full year dividend to 1.61p from 1.46p previously
  • Andrew Day, the company’s chief executive, said the firm had started the new fiscal year “promisingly” and was “actively reviewing” more purchases
  • New chief financial officer Jon Hauck will join from FTSE 100 giant Rentokil Initial PLC (LON:RTO) in November

Blue Sky

Looking to the future, Day said the business was seeing “good overall demand” for its services, adding that there was a “likely increase in demand” expected from the arrival of games subscription and streaming services from tech giants Google and Apple Inc (NASDAQ:AAPL), who both announced subscription-based gaming services in March.

"Our strengthened market leadership and breadth and scale of service offering enable us to take advantage of the multiple growth opportunities afforded by a market that continues to grow in size and sophistication", he added.

What analysts think

Following the company’s full year results, analysts at broker Liberum upped their target price for Keywords to 1,415p from 1,245p, saying the “positive news flow” around the video game industry over the past weeks was “likely to benefit” the firm.

The broker added that among the ongoing trends in the industry that could be good news for Keywords was the continuing popularity of online multiplayer video game Fortnite, for which the company does a “considerable” amount of work.

“Despite Fortnite not being as strong as it was a year ago, it remains an extremely large and successful franchise, with millions of players around the world… given its very large size, is an important franchise to have a foothold in”.

With shares trading at around 1,570p as of 17 June 2019, Keywords carries a market cap of £1.01bn.

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