Keywords Just Blew Past SDL’s Market Capitalization

Business is brisk at game localizer Keywords Studios. In a trading update, the company said revenues surged 50% to EUR 63.7m (USD 74.4m) for the six months ended June 30, 2017, compared to the same period in 2016. Pre-tax profit adjusted for acquisition-related factors jumped 60% to EUR 9.6m in the first half 2017 from EUR 6.0m in H1 2016.

Headquartered in Dublin, Ireland, Keyword Studios provides translation, localization, testing, audio, customer care, and digital art production services to video game developers and publishers.

Revenues rose as all service lines showed organic growth, except for Audio, which the company attributed to a “particularly tough comparative due to the exceptional performance of Synthesis in H1 2016.” Keywords had acquired the Italian game localization company in 2016.

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Keywords is listed on the London Stock Exchange, and the strong earnings announcement handily beat analyst expectations. Shares surged by nearly 20% on the back of the results, taking Keyword’s market capitalization close to GBP 600m (USD 784m) as of July 27, 2017.

This puts Keywords ahead of fellow London-listed language service provider SDL, whose market capitalization stood at GBP 529m as of July 27, 2017. SDL’s very positive performance in 2017– shares are up 50% – is no match to Keyword’s bull run over the same period, which saw its shares more than double over the same period.

Frothy Levels

Apparently, investors are expecting big things from Keywords as the stock’s price-earnings ratio at over 100x has now climbed to levels typically seen at fast-growing technology companies. Keywords’ business model does involve technology but still has a strong service component.

Keywords has been the most prolific acquirer in the wider localization industry over the past two years. Since January 2017, the company has acquired four new companies: London-based design and animation studio Spov; localization solutions provider XLOC; game development services provider GameSim; and arts services provider Red Hot.

The company disclosed that it has invested net cash of EUR 6.9m for the said acquisitions and, with a credit facility of up to EUR 35m with Barclays, it “will continue to evaluate a healthy pipeline of high quality acquisition opportunities” in line with its strategy.

Keyword Studios Chief Executive Andrew Day said the company is seeing the benefits of a wider geographic reach as it introduces additional services to established clients.

“We continue to win new clients and grow market share,” he said, reiterating that it will continue to invest in existing and new businesses and building its talent pool.