Even though I’ve spent quite some time on the forums, I finally decided to open my first thread. I’ve been following Unity Technologies (Unity Software Inc, NYSE: U) for a long time and finally joined in with a small initial investment (just as the stock price reached ATH levels 
), so let’s create a thread for it. The company has been touched upon in some discussions on the forum (e.g., in QT and gaming industry threads), but I haven’t seen much discussion about it – are there other forum members investing in Unity?
Product:
- Unity’s core product is the Unity engine – a graphics engine used especially for creating various games, but increasingly also in other professional uses such as industrial 3D design.
- Many different software solutions (and also service businesses) have been built around the engine: e.g., the Unity Ads advertising platform, the 3D marketing and sales tool Unity Forma, and much more.
- Additionally, Unity operates the Unity Asset Store, where designers can sell their created graphical assets to others (and Unity takes a cut from each sale).
Pricing:
- Unity’s core product operates on annual licenses. The price depends on team size and other parameters but is in the range of several hundred dollars per month per user (based on website research, usually billed annually).
- Free trial versions are also available for a limited time.
- A completely free version is available for individuals and small organizations => Encourages experimentation and partly contributes to license sales.
Brief history of the company
- Founded in 2004 in Copenhagen under the name Over the Edge Entertainment, now headquartered in San Francisco
- 2007: The company’s name changes to Unity, and it is one of the first 3D engines to support the first iPhone
- 2010: Unity Asset Store is launched
- 2014: Unity acquires Finnish Applifier. Original CEO and founder David Helgason steps down, and the new (current) CEO John Riccitiello begins.
- 2016-2018: Several funding rounds. At the end of the 2018 funding round, the company’s value is estimated at approximately 3 billion dollars. A frequent series of acquisitions begins.
- 2020: Unity lists on the New York Stock Exchange with a valuation of approximately 13.7 billion dollars.
Growth and acquisitions:
- Unity actively makes acquisitions: the latest acquisition announced this week is the purchase of Peter Jackson’s effects company Weta Digital for 1.6 billion dollars. This will certainly bring high-level graphics expertise to the company.
- In the last 12 months, there have been at least 5 acquisitions or acquisition intentions, and acquisitions have also been made very actively in previous years.
- The company also operates in Finland (where they acquired Applifier in 2014, and Unity’s advertising technology, Unity Ads, was developed based on its technology).
- The company has grown strongly: the Q3/2021 report stated revenue growth of 43% vs. Q3/2020, and annual growth since 2018 has been approximately 40%.
- The number of large accounts (over 100,000 USD revenue per 12 months) is also growing (Q3/21 vs. Q3/20 approximately +32%).
Stock and key figures:
- The stock has risen approximately 165% since its listing in September 2020 (at the time of writing), and its market capitalization is already a staggering 51 billion dollars (181.94 USD per share).
- Unity is still making a loss – and has been since its founding in 2004 (although the loss per share has decreased: Q3/21 EPS -0.41 vs. Q3/20 EPS -0.97 USD).
- Absolutely massive growth expectations have been loaded into this. Measured by key figures, the stock is indeed very expensive due to the recent rise: P/B 26.11 and P/S 55.25 at yesterday’s closing price. For comparison, Autodesk’s P/S is 17.89, Adobe’s 20.49, QT’s 32.05, Nvidia’s 35.09, and Facebook/Meta’s 8.41 (and all of them are profitable).
Risks
- As with other growth companies, very high expectations have been placed on Unity’s growth (which have been met so far). If these are not achieved, the ride will certainly be rough.
- Even though the number of high-paying customers is growing, Unity still needs a very large (and constantly growing) user base to achieve its goals.
- Technological competition (especially with Unreal) is very tough, and a lot of money has been invested in acquisitions: if Unreal (or some other smaller competitor) is capable of new innovations that Unity cannot match, even large accounts can be lost quickly.
- In the future, a larger part of the growth may come from outside the gaming industry, where there is also more competing software (as detailed below). There are no guarantees that Unity will be as supremely dominant a technology in these sectors as it is in games. Furthermore, diversification into multiple sectors may bring additional risk of product fragmentation (when trying to be everything to everyone).
Comparisons
- Perhaps the most direct competitor for Unity is Unreal Engine, which is owned by Epic Games (estimated to be worth approximately 30 billion dollars) and is not publicly listed, making its valuation challenging. I understand that many developers creating large-budget AAA games prefer Unreal because impressive graphics are easier to implement with it. However, Unity leads in the indie and mobile sectors, and the acquisition of Weta Digital could turn this dynamic on its head.
- Other comparables could be industrial design software, but these have a much weaker (if any) position in the entertainment sector. Examples include AutoDesk, KeyShot, etc. In terms of graphics, Adobe could also be considered a kind of comparable.
My investment thesis:
Unity interests me particularly because I believe it has the potential to be a REALLY big player in the entertainment and gaming industry, as well as in industrial design – especially if virtual reality gains momentum, as painted by Mark Zuckerberg of Facebook, for example. The bonus here, however, is that Unity benefits regardless of who wins the VR race, as those VR objects are largely created with Unity. According to their own statement, approximately 50% of all mobile games and about 60% of all virtual reality content are built on the Unity engine.
What’s also great about Unity is that revenue comes from multiple sources: the Unity Asset Store, software licenses themselves, and the advertising network.
Useful links
So, those are the most important points. What are other forum members’ thoughts on Unity?
. Mutta itselläni on myös pieni siivu tätä salkussa ja aikalailla samoista syistä. Minulla ei ole syvää asiantuntemusta alasta, mutta miellään olen tällaisen yhtiön kyydissä. Alunperin hain salkkuun jotain peliyhtiötä, mutta sitten totesin että mielummin omistan yhtiötä jonka tuotteella tehdään pelejä ja kaiken kukkuraksi päästään osallisiksi myös tehtyjen pelien tuottoihin.
Editoitu ja homma ratkaistu