viewKeywords Studios PLC

Keywords Studios steaming ahead with growth plans despite crisis


  • Supplies range of technical services to computer games developers and publisher
  • Clients include Sega, Nintendo, Google, Microsoft and Warner Bros
  • Employs buy-and-build strategy and has been expanding rapidly
Keywords Studio

Quick facts: Keywords Studios PLC

Price: 1875 GBX

Market: AIM
Market Cap: £1.38 billion

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 direction, 3D animation, software engineering, audio services, functionality quality assurance (QA), localisation (enabling games to be published in several languages) and player support.

Game development is its largest addressable market — estimated to be valued at well in excess of US$3bn but with just a fifth of services across the industry currently outsourced, though Keywords clients include Sega, Nintendo, Electronic Arts, Microsoft, Google, Warner Bros and Tencent Games.

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

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


What it 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 added a trio of new firms, Kantan, an Irish developer of automated translation technology, Ichi Holdings, a London-based creative and marketing services firm Syllabes, a provider of audio recording and French and English casting services.


How it is doing

While the coronavirus crisis has caused numerous companies to go cap in hand to investors for cash to keep themselves afloat, Keywords Studios raised £100mln via a share placing to make strategic moves and consolidate their market position before the volatility subsides.

The pandemic has driven up demand for videogames, with revenue for March and April up 7% on the same period last year.

The group had also gradually increased the operational capacity of its testing service into May.

Keywords said it expected revenue “to improve incrementally” as its testing businesses increased the number of staff working from home and its audio business gained access to studios for voice over recording as the lockdowns ease.

In the year ended December 31,2019, adjusted pre-tax profit was €40.9mln, up 7.9% on the prior year, while revenues surged 30.2% to €326.5mln.


What the boss says: Andrew Day, chief executive

"2020 is expected to see stronger demand from a fuller release schedule as a result of the launch of a new generation of games consoles, in addition to the further development of new streaming platforms, content demands for virtual and augmented reality, and the underlying drivers of growth across the video games market."

"Whilst we are seeing some operational disruption to the provision of our services due to the COVID-19 pandemic, with some of our service lines and locations affected more than others, the underlying drivers of growth across the video games market remain intact. It has also been encouraging to see our clients turning to us for support in these difficult times and our teams responding with extreme agility to support them, whilst rapidly implementing our own contingency plans."





What the broker says

In February, Berenberg upgraded the stock to ‘buy’ from 'hold' and hiked the price target to 1,700p from 1,288p.

Liberum also hiked the target price to 1,875p from 1,799p when moving the stock to 'buy'.

Analysts said the firm is well placed to deliver material growth in 2020 and beyond.

At the end of the year, Microsoft is set to launch the Xbox Series X while Sony will roll out its PlayStation 5.

In a note published on 27 January, analysts at Jefferies International nudged up their price target for Keywords Studios, saying the next group’s trading statement should confirm double-digit growth and margin improvement.

The US broker reckons the stock is worth 1,881p, up from 1,853p, repeating its ‘buy’ recommendation on the stock.

“The market will wait to see acquisition spend inflect, but we're confident [Keywords’] opportunity-set and attractiveness has grown,” analysts said.


Inflexion points

  • Fresh round of funding to bolster acquisitions
  • Videogame industry booming during pandemic

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