Unity Software
Unity is a game development engine. It claims to be the world's leading platform for creating and operating interactive, real-time 3D content. So far, the platform is mostly used by game developers, but Unity believes that its platform will eventually be used across a variety of industries including for training, engineering, architecture, manufacturing, and entertainment.
Unity's Success
Over the past year, Unity has revenues of $541 million in revenue and is forecasting $700 million in revenue over the next year. Currently, the company has 1.5 million monthly active creators in 190 countries. So far, there have been 3 billion downloads of games created by developers using Unity's game engine on more than 1.5 billion devices.
About a little more than half of the games in the top 100 in the Apple
In its S-1 filing, Unity sees a total market opportunity of $29 billion between video games and other use cases for its platform. While video games are currently its core business, it sees other areas as sources of future growth. In its prospectus, Unity said, "Leaps forward in computing power and bandwidth are enabling an explosion in interactive, real-time 3D content - led by games and now spreading rapidly into other industries."
How Unity Makes Money
Unity makes money by helping its creators monetize their games. Notably, it doesn't charge for the use of its platform until games reach a certain number of downloads. After that, it gives creators a variety of options to monetize including advertising and in-app purchases.
In one way, Unity is a bit like Shopify
Unity has built a similar business. It builds software and tools to help the developers on its platform build games and then helps them monetize their games, so its incentives are aligned with its users. Currently, 29% of Unity's revenue comes from fees it charges on its platform to developers of popular games, while 61% comes from the cut it takes from monetization of games.
Stock Outlook
Unity has been able to attract talented, independent developers to its platform since they can test out ideas at no cost, and they are only charged if their games become popular. Its software also easily allows games to be made available on all types of devices, consoles, and applications. Many video game companies are switching to building their games on Unity's platform as it lets them focus solely on creating games rather than also building game engines and then creating games.
Another bonus for Unity is that its major competitor is Epic Games. Currently, Epic Games is at odds with Apple and Google. This may dissuade developers from using its platform. Additionally, Epic Games had to reduce the prices it charges to developers as a result of Unity's no-cost pricing. Epic also makes its video games, while Unity does not, so there is no competition with the users on its platform.
Unity shares a lot of characteristics with recent, stock market winners. Once a developer builds a game on the platform, they are likely to remain loyal. Additionally, they are also likely to continue using Unity, once they become familiar with the tools. The pricing structure is also similar to a lot of SaaS products which have low upfront costs and the cost scale with the use of the product.
Also, it's growing sales at more than 50%. Given the popularity of gaming especially among young people, the total market size is also growing. Rather than making money from selling video games, Unity is creating the infrastructure of video gaming. During the Gold Rush, the most successful people were not the ones who were mining gold but the people selling miners clothes, shovels, and other equipment. Unity's role is similar in the video game market.
