A short recap…
Unity is not best-in-breed. Unreal Engine is the dominant player. It isn’t even close. Unity can do AAA games but it is nowhere near dominant in the industry. Quantity is not a sign of success in video games at all. It is a sign of a low barrier to entry. 10 years ago they beat Unreal to a more approachable user interface and easy cross-platform output. Unreal caught up and is still dominant. Unity had their chance and they couldn’t displace Unreal.
I don’t want to get caught up in thinking about other tech segments as optionality or opportunity either. I don’t like investing in story/possibility. If these ares are actually adding significantly to sales today then that is awesome and I will be happily surprised. That said, as far as I am aware, Unity is not first or dominant in VR, AR or AI-related applications either. I know of real world situations where Unity was used at the start of real-time application development and then replaced by Unreal for various reasons from ease of company workflow integration to talent-pool (developer talent sourcing) considerations, to the talent at Unreal itself being a resource.
Don’t confuse my investing views with how I feel about using the software. I’ve developed plugins for Unity. I’ve been around it for 10+ years, casually, but close enough to see what it is. It is a fun software for playing with game development. Support has always been great. Core feature improvements are perhaps a little slow but in the right direction.
With that point out of the way…
Revenue growth and GM look pretty good but paint an incomplete picture. I used to think IPOs were bad because there is no track record but companies are required to file history via S1s and the data is available, so this is no longer an issue. I found this data at my favorite source going back a couple of years:
http://www.rocketfinancial.com/Financials.aspx?fID=452777&am…
Jun-20 Mar-20 Dec-19 Sep-19 Jun-19 Mar-19 Dec-18 Sep-18
S-1/A S-1/A S-1/A S-1/A S-1/A S-1/A S-1/A S-1/A
Revenues 184.3 167.0 158.1 130.9 129.4 123.4 116.5 95.2
Growth 42.5% 35.3% 35.7% 37.5% 45.4% 54.1%
Gross profit 143.9 135.1 128.1 104.5 100.3 90.3 89.8 75.2
Margin 78.1% 80.9% 81.0% 79.8% 77.5% 73.2% 77.1% 78.9%
Note: It looks like there should be a report soon but I didn’t see any information on when their first public quarterly report will be released at https://investors.unity.com.
If I were going to consider investing, I would be interested in these points:
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Revenue Growth acceleration: It would make a big difference to me if revenue growth fell back in to the mid 30s versus accelerating toward the high 40s. I think they are too small still to see decelerating revenue growth, which until last quarter is the picture I see above.
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Net retention rate: which I’m told they do not report (not ok for SaaS companies these days). I suspect churn is high in the 3-12 months subscription timeframe, though perhaps churn will show more in the free tier.
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Revenue make-up: Different tiers as well as AssetStore and other services. This would help understand sources of expansion. I would want to build a view of what kind of customer they are focusing on. Is it the high-churn hobbiest? Small studio? Other?
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Rafe
(Not long U at this time.)