Gamers used to be obsessive teenagers battling it out on PlayStations and Xboxes. Today, we have all jumped on the bandwagon. City workers wake their brains with an early-morning Wordle, grannies get their daily fix of iPad solitaire and kids beg for another half-hour of Minecraft screen time.
Gaming habits picked up in lockdown have stuck. Revenues in the sector are expected to exceed $81 billion (£61 billion) this year — bigger than cinema’s pre-Covid box office takings and the music industry combined.
A stock that offers an interesting way into that growth is Keywords Studios. In contrast to some of the more conventional games publishers listed in London, it is an outsourcer. The Dublin firm has had a hand in most of the biggest games on the market — Fortnite and the Assassin’s Creed and Fifa franchises among them — but publishes nothing under its own name. Instead, it does the grunt work: it tests and polishes games before they go on sale; it makes an Xbox game work on a PlayStation; it has a division where actors voice the words spoken by the in-game characters; and it is the world’s largest gaming translator.
The sector is in the grip of an enormous M&A spree. This year’s blockbuster deal — albeit it is only March — was Microsoft’s $69 billion splurge on Candy Crush maker Activision Blizzard. Streaming giants such as Netflix are also going shopping to build up their gaming content.
If you were Amazon or Tencent, say, and you wanted to spread your tentacles deeper into every aspect of gaming, an acquisition of Keywords would be an excellent place to start. That is true for the investor, too: Keywords’ shares on Aim had a stonking run up to £33.02 last year but today it’s trading at nearer £21, hit by wobbles over the health-related early retirement of its former chief executive.
Yet there is a new, steady pair of hands on its controller now, and no sign of a slowdown in either the world’s appetite for gaming or gaming’s appetite for Keywords. Berenberg gives the firm a £34.50 price target, predicting “mid-teen” organic growth and net cash growing to nearly €160 million (£132 million) this year (although Keywords is also a very active dealmaker, buying almost 60 firms since listing at 123p in 2013).
This highly diversified company has a big international footprint, with 70 studios in 23 counties, and boasts long and deep customer relationships. Before you buy a bonus level of your latest gaming fix, buy Keywords Studios.
