Keywords Studios PLC – picks and shovels for the Gaming industry

Keywords Studio is the largest and most diverse provider of outsourced services to the video game industry. They have grown over the years through acquisition of smaller studios and continue to make multiple acquisitions each year. They have done 8 acquisitions if 2019 and 44 since their IPO in 2013.


The business was originally started by Giorgio Guastalla in Dublin in 1999 to provide localization services to software industry. Giorgio invited an old colleague Andrew Day to run the business around 2009. Giorgio continues to be a non-executive director on the board. 1

Major Shareholders

Franklin Templeton 9.1%, Octopus Investments 6.2%, Giorgio Guastalla (through PEQ Holdings) 5.4%, Andrew Day 5.1%, Liontrust Asset Management 5.0%, T Rowe Price Global Investments 4.9%, TimesSquare Capital Management 3.5%


Only service provider of scale providing services across the value chain: They work with 23 of the top 25 gaming companies by revenue. More than 50 studios across 21 countries. Services include – art and marketing services (13% of total revenue for 2019 / revenue growth of 28% in 2019), game development (20%, / 88%), audio services (12% / 18%), functional testing (21% / 44%), localization (15% / 10%), localization testing (7% / 15%), player support (11% / 1%).

Long runway: Total opportunity size of outsourcing within gaming industry is more than USD 6 billion. With Keywords revenue of EUR 326 million in 2019, they have captured 6% market share and have a long runway ahead. 2 Additionally, their expertise in working on interactive content for video game market is also sought after in other industries such as films, television and education. Although currently focused on video game industry, this is an area of potential future growth which will further expand their total addressable market (TAM). Here is CEO, Andrew Day’s answer when asked -Should the TV+SYNCHRON acquisition be seen as a signpost that you will be doing more in the TV and film spaces?

Although we see some clear synergies in the TV and film market where demand for our expertise already exists, TV+SYNCHRON was an opportunistic acquisition which allows us to take advantage of some highly complementary opportunities in the European dubbing market. Whilst we will continue to consider opportunities in adjacent markets, the global video games market remains our core focus and there is still a lot to do in this area.

Highly fragmented industry: There is considerable scope for consolidation within the highly fragmented outsourcing service providers. In the words of Andrew Day – “This investment will enable us to continue to deliver high levels of growth in the medium term, in a market that was already seeing an accelerating trend towards outsourcing and could see an even greater shift to outsourcing in response to the COVID-19 outbreak, as clients seek to enhance the resilience of their production arrangements for the long term.

Covid beneficiary: A lot of smaller studios and publishers are finding it difficult to secure business due to coronavirus. Many of them are in a precarious position. 3 However, for Keywords this may be an opportunity to acquire many of these stressed studios at attractive valuations during this downturn. They are planning to do exactly that and are raising GBP 100 million through an equity placement to prepare for such opportunities. 4


Multiple acquisitions each year: they are doing multiple acquisitions each year. So far, they have executed on it well but there are multiple risks in growth by acquisition strategy – including integration, fit, etc. At revenues of EUR 326 million, it is still a small company and needs to prove that this is a sustainable business model.


Current valuation at EUR 1.4 billion on revenues of EUR 326 million (4.3x), PAT of EUR 10 million (140x) and CFO of EUR 33 million (42x) is not cheap. However, the company continues to grow at very high rates and has grown revenue at CAGR of 54% over the last 5 years from 2014-2019. If they can continue to grow at half those rates in the future, they may be able to justify the valuations. There are multiple levers to value creation including – moving up the value chain and increasing proportion of premium services such as art and marketing, game development, etc. Secondly, economies of scale will begin to kick in with increase in scale.

A more detailed note on Kewords is available here –

  2. Annual report 2019 (Page 13)
  3. Gaming boom hides struggle to create new hits in isolation
  4. Keywords Studios is raising $122 million to acquire businesses struggling with COVID-19

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