Video games services consolidator Keywords Studios (LON:KWS) has been one of AIM’s big successes.

Keywords joined AIM in July 2013 and at that time raised money at 123p a share. The share price is still more than ten times that level, even after a sharp fall over the past six months.

Keywords is exposed to one of the big growth markets in the world and it has used its quotation to make acquisitions to widen its range of services and increase its scale. Through a combination of organic and acquisitive growth, Keywords continues to grow rapidly.

Games market

The global video games market is valued at $134.9bn, according to Newzoo, and Keywords is very much a global business, having acquired operations in the Americas, Europe and Asia.

In the UK alone there was £5.7bn spent on video games and equipment last year and this market provides information about how the business is evolving.

Software spending grew by 10% to more than £4bn. Within that figure, digital and online revenues were growing at twice the rate and account for 50% of software spending. This is because of downloadable games and in-app purchases.

This trend will continue as streaming services like Stadia build up market share. The growth in eSports is also helping.

It is not good news for everyone, because the second-hand games market has weakened because of the regularly updated, online alternative.

Hardware sales continue to grow as players seek out the latest technology, but it is becoming a less important part of the market as it becomes easier to play games on mobiles while retaining video quality.


Games developers are seeking ways of becoming more efficient and reduce costs, so they are increasingly outsourcing development services as games become more complex.

Keywords provides localisation, testing, artwork, audio, analytics, support and customer care services to the video games sector. It does not matter what technology or platform it is, Keywords can provide these services to any company. Nearly all of the major video games companies are customers including Electronic Arts, Microsoft, Sony, Activision Blizzard and Nintendo.  

Keywords has more than 50 facilities in 20 countries. The most recent acquisition was GetSocial, which was too small to be required to disclose the purchase price. However, the cloud-based technology acquired is important in building up marketing services operations.

The technology may eventually be integrated with the Yokozuna Data analytics platform. This is an example of a good business that will benefit from Keywords scale.

In a fast-changing market, Keywords is in a strong position to pick up add-on acquisitions.


Keywords is reporting its full year figures next Monday (8 April). Edison expects underlying pre-tax profit to improve from €23m to €37.9m and earnings per share are set to increase by 51% to 47 cents a share. There were eight acquisitions last year. Organic revenue growth was 10%.

The balance sheet remains strong with net debt of €400,000 at the end of 2018.

The share price is trading at around two-thirds of its high last year, which is not totally surprising given the heady rating that it was trading on. At 1302p, the shares are still trading on 28 times forecast 2019 earnings.

However, Keywords has shown its ability to make good acquisitions that generally enhance earnings rather than just bulk up the business.

Investing in a company that provides the services to a video games developer and publisher is less risky because it is not dependent on the success of individual games. Keywords is not cheap but it remains a good long-term investment.