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$U: More Than Gaming
Unity Software ($U) is the leading platform for creating & operating interactive, real-time, 3D content.
Thesis: It will fundamentally change how companies bring products to market, reducing frictions across a majority of industries (w/ AR/VR)
A thread
Unity Software ($U) is the leading platform for creating & operating interactive, real-time, 3D content.
Thesis: It will fundamentally change how companies bring products to market, reducing frictions across a majority of industries (w/ AR/VR)
A thread
1/ The Basics
1. Create Solutions: Subscription model for content creators to develop interactive, real-time, 2D & 3D content.
2. Operate Solutions: Revenue share & usage model provides monetization and user engagement products.
Create subs drive adoption of Operate
1. Create Solutions: Subscription model for content creators to develop interactive, real-time, 2D & 3D content.
2. Operate Solutions: Revenue share & usage model provides monetization and user engagement products.
Create subs drive adoption of Operate
2/ LT Trends
1. Tech advancement enables interactive, real-time, 3D content: Distribution (streaming / cloud), Connectivity (Internet penetration), Compute power (GPUs), Endpoint affordability.
2. Cross-industry use cases for RT 3D tools
3. Need for turnkey app solution
1. Tech advancement enables interactive, real-time, 3D content: Distribution (streaming / cloud), Connectivity (Internet penetration), Compute power (GPUs), Endpoint affordability.
2. Cross-industry use cases for RT 3D tools
3. Need for turnkey app solution
3/ Market Opportunity
Existing: $29B Total
- Gaming: $12B ($16B by 2025)
- Other Industries: $17B
Future Option Value:
- Gaming: Assisted workflows & enhanced rendering
- Other Industries: Capitalize on 37MM engineers globally (low code solution?)
- AR & VR: The big driver
Existing: $29B Total
- Gaming: $12B ($16B by 2025)
- Other Industries: $17B
Future Option Value:
- Gaming: Assisted workflows & enhanced rendering
- Other Industries: Capitalize on 37MM engineers globally (low code solution?)
- AR & VR: The big driver
4/ AR & VR: The real opportunity
$18.8B market in 2020 - 32.5% CAGR since 2016
Goldman forecast: $80B market by 2025
- Software: $35B
- Video games: most promising use case ($11.6B)
- U Opportunity: Healthcare, Engineering, Live Events, Video Entertainment, and Real Estate
$18.8B market in 2020 - 32.5% CAGR since 2016
Goldman forecast: $80B market by 2025
- Software: $35B
- Video games: most promising use case ($11.6B)
- U Opportunity: Healthcare, Engineering, Live Events, Video Entertainment, and Real Estate
5/ The Platform
Solutions help create, run, & monetize 3D games & apps on 20+ platforms.
- 1.5MM monthly active creators, creating 6K games/apps per mo.
- 15K new projects / day
- 5.1 hrs/day on platform (Unity Pro)
- 2B mo. active end users
+50% of top games built using Unity
Solutions help create, run, & monetize 3D games & apps on 20+ platforms.
- 1.5MM monthly active creators, creating 6K games/apps per mo.
- 15K new projects / day
- 5.1 hrs/day on platform (Unity Pro)
- 2B mo. active end users
+50% of top games built using Unity
6/ Value Prop
Build Once, Deploy Everywhere: Solved problem of separate rendering for different platforms
Monetization: Ad and in-game purchase capabilities for free-to-play gaming paradigm
Faster content creation & efficient deployment across multiple formats and use cases
Build Once, Deploy Everywhere: Solved problem of separate rendering for different platforms
Monetization: Ad and in-game purchase capabilities for free-to-play gaming paradigm
Faster content creation & efficient deployment across multiple formats and use cases
7/ Opportunities
1. Existing Product Enhancement: Internal dev & acquisitions
2. Existing Customers: Operate benefits from Create
3. New Gaming Customers: Gaming - fastest growing segment in media
4. VR / AR in other industries
5. Global expansion ($70B Chinese gaming mkt)
1. Existing Product Enhancement: Internal dev & acquisitions
2. Existing Customers: Operate benefits from Create
3. New Gaming Customers: Gaming - fastest growing segment in media
4. VR / AR in other industries
5. Global expansion ($70B Chinese gaming mkt)
8/ Financials
Revenue: $184MM vs. $129MM (+42.6%)
- Operate*: $113MM vs. $69MM (+63.8%, 61.4% of Rev)
- Create: $55MM vs. $40MM (+37.5%)
Gross Profit: $143.9MM (78.1%) vs. $100.3MM (77.5%)
T6M FCF: -$34.7MM (-9.9%; vs. -11.7%)
*Majority of revenue is NOT subscription-based
Revenue: $184MM vs. $129MM (+42.6%)
- Operate*: $113MM vs. $69MM (+63.8%, 61.4% of Rev)
- Create: $55MM vs. $40MM (+37.5%)
Gross Profit: $143.9MM (78.1%) vs. $100.3MM (77.5%)
T6M FCF: -$34.7MM (-9.9%; vs. -11.7%)
*Majority of revenue is NOT subscription-based
9/ Key Metrics
DBNER: 142% in Q2 2020 (10 month high)
- 99% Gross Retention (1% Churn)
- Aided by high end user engagement resulting from COVID
Customers > $100K: 64% & 33% of Operate & Create Solutions - FYE 2019
- Q2 2020: 716 (+39% YoY) - 74% of revenue
Rule of 40: 22%
DBNER: 142% in Q2 2020 (10 month high)
- 99% Gross Retention (1% Churn)
- Aided by high end user engagement resulting from COVID
Customers > $100K: 64% & 33% of Operate & Create Solutions - FYE 2019
- Q2 2020: 716 (+39% YoY) - 74% of revenue
Rule of 40: 22%
10/ Competition
Create:
1. Unreal Engine (Epic Games) - Biggest competitor, advantage on big games
2. Cocos2D (Chukong Tech) - Gaming
3. Other game studios
Other:
- Blender (Open Source 3D)
- Maya
- 3ds Max Design
- Cinema 4D
- KeyShot
- $AMZN / $TCEHY
No identifiable moat
Create:
1. Unreal Engine (Epic Games) - Biggest competitor, advantage on big games
2. Cocos2D (Chukong Tech) - Gaming
3. Other game studios
Other:
- Blender (Open Source 3D)
- Maya
- 3ds Max Design
- Cinema 4D
- KeyShot
- $AMZN / $TCEHY
No identifiable moat
11/ Partnerships
- $AAPL: Distribution
- $INTC / $ARMH: GPU architecture
- $GOOGL / DeepMind: Android (distribution), ARCore, AdMob, GCP
- $MSFT: Games & Apps, Havok, HoloLens
- $NTDOY: Game dev
Samsung: Gaming performance
- $TCEHY: Cloud service for last mile delivery in China
- $AAPL: Distribution
- $INTC / $ARMH: GPU architecture
- $GOOGL / DeepMind: Android (distribution), ARCore, AdMob, GCP
- $MSFT: Games & Apps, Havok, HoloLens
- $NTDOY: Game dev
Samsung: Gaming performance
- $TCEHY: Cloud service for last mile delivery in China
Conclusion
$U will be a major player in gaming & the nascent AR/VR paradigm
Proper valuation will require real options pricing (newsletter will cover)
Not a majority subscription-based business
No identifiable moat but benefits as early mover
No position yet, b/o of IPO base
$U will be a major player in gaming & the nascent AR/VR paradigm
Proper valuation will require real options pricing (newsletter will cover)
Not a majority subscription-based business
No identifiable moat but benefits as early mover
No position yet, b/o of IPO base
