Unity Software is (maybe) the Future of 3D Content

Stock (Symbol)

Unity Software (U)

Stock Price


Data is as of
April 26, 2021
Expected to Report
May 11
Company Description
Unity Software Inc. (Unity) is a platform for creating and operating interactive, real-time three-dimensional content. The platform provides a set of software solutions to create, run and monetize interactive, real-time two-dimensional (2D) and three-dimensional (3D) content for mobile phones, tablets, personal computers, consoles, and augmented and virtual reality devices. Content made with Unity is real-time, allowing it to instantly adapt to user’s behavior and feedback. Unity’s Create Solutions are used by content creators, developers, artists, designers, engineers, and architects to create interactive, real-time 2D and 3D content. The Company’s Operate Solutions offers customers the ability to engage their end-user base, as well as run and monetize their content.
Sharek’s Take
David SharekUnity Software (U) claims to be the leading platform for creating and operating interactive, real-time 3D content. The company serves creators including video game developers, artists, architects, auto designers, and filmmakers. I believe the company is currently the leader in 3D image and video creation, but think other companies such as Epic Games, Electronic Arts, and even Snap also have the ability to lead the 3D race.

Unity’s platform consists of software solutions to create, run and monetize interactive, real-time 2D and 3D content for mobile phones, tablets, PCs and virtual reality devices such as Facebook’s Oculus Quest. Unity has a community of 1.4 million monthly active creators that developed over 8000 games and apps per month during 2020, with Unity Pro platform customers spending 5.2 hours a day on the platform. The company has two sets of solutions:

  1. Creative Solutions used by developers, artists, designers, engineers and architects to create 2D and 3D content. Creative solutions are offered primarily through monthly subscriptions.
  2. Operate Solutions for consumers to grow and engage their fans, as well as monetize their own content. Operate Solutions are operating on a revenue share and usage based models. Unity Ads and Unity IAP (In-App Purchases) help developers make money.

The company is used primarily for gaming, and management estimates in the 4th qtr of 2020 that  But there is vast opportunity for the company in industries that build such as construction to show what it looks like to walk through a home, auto to show what the options or colors of the car really look like, film to bring a more life-like entertaining experience, and retail to display apparel on the consumer. Stats from last qtr include:

  • Revenue growth of 39%.
  • Create Solutions (30% of revenue) grew 39%.
  • Operate Solutions (61% of revenue) grew 55%.
  • Strategic Partnerships (9% of revenue) had -19% revenue growth.
  • 793 customers with >$100,000 in annual revenue, with 13% driving revenue for Unity outside of gaming (up from 8% two qtrs earlier).
  • 71% of the top 1000 mobile games were made with Unity.
  • Downloads averaged 5 billion per month.
  • Monthly Active Users averaged 2.7 billion per month.

Unity has been a rapid grower revenue-wise with sales during the past three years of $381 million, $542 million, and $772 million. This year, the company is expected to do $971 million in revenue. Unity seems like the best bet for 3D software moving forward, but the company is losing money. The stock sells for around 30x revenue which is a valuation shared by many top software stocks. 

One Year Chart
Note: these charts and tables were done on 4/26 with the stock at $105. Today, 5/4, U is $95.

U had its IPO in September 2020 and opened at $75. The stock ran to a high of $175 by December, then declined as unprofitable growth stocks went out of favor. Unity was $150 a share the day it reported earnings, then after the company reported the stock dropped to $125 the following two days as it fell on HUGE volume. The stock has been basing between $90 and $110 since March of this year.

There are no profits, P/E or Est. LTG to show.

Earnings Table
Last qtr, Unity delivered a loss of 10 cents a share and beat the street’s estimate of a 15 cent loss. Revenue increased 39%.

Annual Profit Estimates show the company is expected to start making money in 2023.

There’s not much to see in the qtrly Estimates.

Fair Value
My Fair Value is 30x revenue which was what the stock was selling for when these charts were done 8 days ago:

30 x $970 million in revenue = $29 billion market cap
$29 billion / 278 million shares = $105

2021 Fair Value:
30 x $970 million in revenue = $29 billion market cap
$29 billion / 278 million shares = $105
Upside/Downside: 0%

2022 Fair Value:
30 x $1.24 billion in revenue = $37 billion market cap
$37 billion / 278 million shares = $134
Upside/Downside: +27%

Bottom Line
Unity Software (U) is currently the leader in the race to create 3D software. But there is not a moat to keep competitors like EA or Epic Games away. And Snap holds many patents on 3D software. Also, Adobe is a big player in movie making and I imagine they will be a formitable foe as well.

I like this stock for the Aggressive Growth Portfolio but am afraid to buy in at this time as unprofitable software stocks have been trending lower. Buying now would be trying to catch a falling knife, which I wouldn’t mind doing if the stock was a bargain. But at ~30x revenue, this stock isn’t on sale.

I think U could drop like it did when it last reported earnings, thus I will put the stock on the radar for the Aggressive Growth Portfolio

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