Risk appetite is picking up strongly again across UK share markets. The FTSE 100 is moving further above the 7,000-point landmark to fresh 15-month highs whilst the FTSE 250 has also charged to new all-time peaks. I myself have been busy buying British stocks for my Stocks and Shares ISA in recent days too.
The rate at which the video games market has been growing recently (and indeed is tipped to expand by in the next several years) has caught my attention. So I decided to take the plunge by investing in Keywords Studios (LSE: KWS). This tech company provides a range of creative, technical and marketing services to some of the world’s biggest software manufacturers.
Sales at Keywords Studios soar
Revenues at Keywords rose 14.4% year on year in 2020. This was driven in large part by Covid-19 lockdowns that in turn prompted huge increases in the number of video game players and gameplay levels in general. I think the company can expect extra top-line progress from 2021 onwards too. As analyst Nicholas Hyett of Hargreaves Lansdown comments: “[Last year’s] trends look set to continue into 2021 even if pandemic disruption subsides. The launch of the next generation of consoles, the PlayStation 5 and Xbox X/S, mean a batch of new games to work on while studios are expected to up new content production as they look to hold on to new gamers acquired over the pandemic.”
A better UK gaming share?
This tech stock isn’t the only way that UK share investors can exploit the booming video game market. Indeed, I was thinking of adding game developers Frontier Developments or Team17 to my ISA instead. But Keywords has one big advantage over these particular stocks. As an outsourced supplier, its profits aren’t dependent upon the success of individual games titles. Launches can flop for a variety of reasons, from technical problems and poor reviews to intense competition. Keywords Studios saves its shareholders from such worries.
Hyett of Hargreaves Lansdown has made an interesting analogy about Keywords on this front. He comments that “it’s often said that during the California gold rush the big winners weren’t the miners themselves, but those that sold the equipment needed to dig. Given the rapid growth in gaming we see Keywords as a purveyor of pickaxes in a digital gold rush.”
A top ISA buy
Like any UK share though, there’s no guarantee that Keywords will make me big returns. Games development is naturally complex, and any unexpected technical problems the company runs into can result in serious reputational damage that could affect future business. This would be particularly damaging if it resulted in revenues-smacking launch delays for a developer.
That being said, I’m still backing Keywords to make me some good ISA profits over the long term. I like its strong relationships with software developers that should allow it to exploit the booming gaming industry to the fullest. A string of recent acquisitions to boost key areas could improve its custom from games studios too.
