Unity Software released their S-1 filing yesterday morning. I spent the afternoon digging into the filing pulling out what I thought interesting, fascinating and down-right awesome. Here’s the link to the S-1 if you want to follow along at home.
The below post is the unrolled version of my earlier Twitter thread. You can find that here. Let’s get to it.
Unity (prop ticker: $U) filed their S-1 this AM. I read the filing so you don’t have to (but you should). Here’s a thread on what I found interesting, fascinating and down-right incredible from the company. I’m starting from zero.
High-level Facts & Figures
These high-level stats impressed me:
- 1.5M monthly active creators
- 50%+ of all mobile/PC/console games made w/ Unity
- 3B app downloads per month (!)
- 15K new projects made per day
- Creators span 190 countries
Business Motto: “We believe the world is a better place with more creators in it. Creators, ranging from game developers to artists, architects, automotive designers, filmmakers and others, use Unity to make their imaginations come to life.”
Power to the creators.
What Makes Unity Great?
Offering: $U provides set of software solutions to create, run and monetize real-time 2D/3D content for mobile, tablets, PCs, consoles and AR/VR.
End-Result: A fundamentally more engaging and immersive gaming experience. Instant adaptability.
What Makes Unity Great (pt.2)
$U offers tremendous scale. They can service huge development teams as well as individual creators.
Individuals can rapidly create and tweak new games (increases adoption)
Once built, $U games can run on 20+ platforms (zero barriers 2e)
A Two Solution Biz Model
Create Solutions: Lets users (artists, devs, engineers, etc.) create 2D/3D interactive, realtime content
Operate Solutions (more interesting): Offers cust. ability to grow & engage with user-base, as well as run/monetize content.
How Unity Monetizes Two Solutions
Create Solutions (CS): monthly subscription
Operate Solutions (OS): Rev-share and usage-based
The reason: Generate revs as builders develop content and ALSO generate revs as their game grows and becomes successful.
CS DRIVES OS!
Create Solutions: 43% of Revs
Five plans customers can buy with Create Solutions:
- Unity Plus
- Unity Pro
- Unity Enterprise
- Unity Personal
- Unity Student
Customers typically buy 1-3 yr subscriptions, billed monthly, quarterly or annually.
Operate Solutions: 57% of Revs
Revenues from this segment are lumpy (depending on popularity of games)
Unity relies on expanding their customer base to smooth revenue volatility
Aligned incentives: U generates more revenue as their customer’s game gains popularity
Let’s Talk About TAM, Shall We?
Unity sees their TAM around $29B across both gaming and other industries.
They’re looking beyond gaming and their current markets.
Future TAM could be (according to mgmt) “multiple times larger than the opportunity today.”
Rapid Revenue Growth, Shrinking Operating Losses
Unity grew revenue 42% YoY ($380M to $541M).
They’re currently losing money ($163M last year and $131M in 2018).
Net cash used in operating activities decreased from $81M in 2018 to $68M in 2019.
The Power of Real-Time 3D
Unity is banking on the power of Real-Time 3D to drive creative innovation, more engaged users and better games.
They break down the power of 3D:
- Interactive: Connect with content & other gamers
- Real-Time: 120 images per sec
- 3D: more real
Technology Driving Real-Time 3D Adoption
Rapidly evolving tech allows $U to create better, more realistic and interactive games than ever before.
This new tech relies on these four pillars:
- Computing power
- Platforms & Devices
Unity Growth Strategies
$U has identified five ways they can grow in the future:
- Invest in product innovation
- Grow existing gaming customers
- Grow new gaming customers
- Grow beyond gaming
- Grow across global markets
See more below:
Diving Into Financial Data (What Stood Out)
In 2019, $U generated $541M in revenue and $423M in Gross Profit (>78% GM!!)
Shares Outstanding: 114M – Customers > $100K revenue: 600 in 2019 vs. 484 in 2018
Dollar-based Net Expansion Rate: 133% in 2019
Diving Into Financials (Balance Sheet)
- Cash: $453M
- Working Capital: $339M
- Total Assets: $1.29B
- Deferred Revs: $107M
- Total Debt: $124M
- Shareholders Equity: $647M
Interesting Graphs on Customers, Retentions Over Time
Check out these graphs on:
- Customers > $100K over time
- % of Revenue Rep by Customer > $100K over time
- Dollar-based Net Expansion Rate over time
- Customer Cohort Analysis
Letter From Unity CEO
I liked how the S-1 included a letter from $U CEO.
Here’s a couple interesting quotes from that letter:
Unity Reviews from Other Game Studios
The consensus: Unity allows game developers to rapidly create, test and curate new games. This in turn fosters a more creative environment, which leads to more potential blockbuster games.
The company has myriad customers using both its Creative, Operate and Architecture Solutions, including:
- Arena of Valor
- Iron Man VR
- Pokemon GO
- Ubisoft Mobile Games
- Skanska (Volvo)
Executive Management Comp
- CEO: $8.4M total compensation (owns 3.4% of company)
- CFO: $5.23M total compensation
- Sequoia Capital owns 24% of shares
- Silver Lake Partners owns another 18.2%
Student of value investing for over 13 years spending his time in small to micro-cap companies, spin-offs, SPACs and deep value liquidation situations.