Global gaming revenue is around US$91bn and forecast to grow around 8% per year while, at present, the outsourcing market is worth around US$4.7bn.
Video game development service provider Keywords offers a range of skills including translation, localisation and, most recently, art services to game publishers.
Its service offering opens it up around US$3.6bn of this, but with some 81% of video game services still completed in-house by game developers, the broker reckons the service outsourcing market could grow rapidly.
finnCap cites rising development costs and the digitisation of distribution channels as reasons publishers could look to control costs by relying on outsourcing companies.
Keywords’ diverse offering, six different services from 16 locations, makes it “significantly more comprehensive than its typical single service/single geography competitor,” the broker added.
This advantage has led the company to servicing 21 of the top 25 video games publishers by revenue.
Organic growth in its first half was 23%, showing the company’s “ability to win new business and keep existing clients,” finnCap said.
Some 80% of Keywords’ revenue is recurring, with this likely to be added to by an increase in constantly updated games, such as mobile, and the addition of more long-term projects.
Keywords has also completed some eight acquisitions since its IPO two years ago, with its most recent, Liquid Development, adding additional art services to its offering.
“The addition of art services has and will continue to improve/accelerate the group’s addressable market, growth rate, gross margin and revenue visibility,” the broker said.
It initiated coverage on Keywords by placing a ‘buy’ recommendation on the stock, with a target price of 245p.