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.

How it’s doing

Keywords raised its full-year expectations in November as a result of continued strong trading in the second half of the year.

The provider of services to the computer games industry said it expects full-year adjusted profit before tax will be significantly ahead of the current market consensus.

Revenue for 2020 is expected to be in line with market expectations of €367mln, up from €326.5mln, reflecting robust demand for the group’s services despite previously stated coronavirus (COVID-19) production constraints.

Adjusted profit before tax is now expected to clock in at around €52mln, versus the market consensus of €46mln and up from €40.9mln in 2019.

December saw the acquisition of High Voltage, a privately-owned provider of game development services to the video games industry.

Keywords is paying up to US$50mln for High Voltage (HVS), which is expected to generate underlying earnings of around US$9mln in 2021.

What the boss says: Andrew Day, chief executive

“With its 27-year pedigree of game development in the global video games market, High Voltage brings incredible experience, expertise and additional scale to our fast-growing Game Development Service Line.

“The multitalented team at HVS brings deep expertise in the Unreal Game Engine development environment, honed particularly well in recent years through working closely with Epic Games on Fortnite, as well as a track record of having worked with many client proprietary game engines.”

What the broker says

Keywords offers exposure to a growing sector without the hit risk that comes with most video games groups, according to Barclays, which has just started coverage.  

As the industry matures, outsourcing will be a more central component of every project – and ancillary services provider Keywords has advantages over peers in scale, technology and reputation, said the bank.

Covid-19 has been a net headwind in 2020 with disruption to some functions, though Barclays expect 10% organic growth.

Inflexion points

  • Continues with acquisitions plan
  • Videogame industry booming during pandemic
  • Busy years ahead with new console cycle