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Keywords Studios: A less risky play in the video game market

Published: 13:05 20 Aug 2015 BST

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Video games have gone through a resurgence in popularity

Video games have gone through a resurgence in popularity lately and investors seem keener than ever to play the market.

A refresh that took place 18 months ago, when the a bevy of next-generation consoles were released, provided a much-needed boost to the industry.

Typically, investors have bought shares in game publishers such as Activision Blizzard (NASDAQ:ATVI) or Electronic Arts (NASDAQ:EA) , but their dependence on the success of a single game or franchise has always made them a risky, cyclical play.

Illustrative of this volatiility is THQ, which, in 2012, went bankrupt after a raft of poor games and console accessory mistakes.

One way to invest in the sector, but avoid these periodic booms and busts, is game service provider Keywords Studios (LON:KWS).

It offers a range of skills including translation, localisation and, most recently, art services to game publishers, thus ridding itself of the ‘hit and miss’ nature of the video game market.

James Serjeant, managing director of corporate broking at City firm Numis, describes AIM-listed Keywords as a “very neat way of playing the fast and high growth gaming sector”.

Safe haven status doesn't come at the expense of excitement for Keywords is expanding at a rapid pace.

This morning it announced it had bought video game art creator, Liquid Development, as part of its on-going effort to provide a full project offering.

But Liquid will gives it a lot more than just art assets.

Numis analyst Serjeant said: “In relation to this latest acquisition, it is in the art space and if you are involved in the art sector the entry point into video games life cycle is much earlier.”

Ths in turn adds “additional work streams that go with it such as translation and localisation”, he said.

Not only this, but the location of the company, in Portland, Oregon, puts it in close proximity to emerging game developers such as Pipeworks, Silver Creek Night Dive Studios.

Of course Keywords also has some blue-chip connections - with companies such as EA and Microsoft - but Liquid has provided the opportunity to work with two new major players, Warner Bros and 343 Industries, the company behind the Halo games franchise.

From a numbers stand point, Liquid is expected to be immediately earnings-enhancing, with the company forecast to post revenues of US$7.5mln and pre-tax profits of US$1.5mln in 2015.

To put that into context, Keywords itself is predicted to make US$8.38mln (€7.5mln) in pre-tax profit this year.

Liquid isn't the only acquisition Keywords has made recently, after it took a 50% stake in Kite Team, last month.

This deal strengthened its position in Latin America, which the company has identified as a key market for the coming years.

And with the industry primed to grow in double digits over the next few years, you can see why savvy investor see Keywords as one of the winners of the games market.

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