World’s leading platform for creating and operating interactive, real-time 3D content.
According to the Prospectus in 2020, Unity describes themselves as one of the world’s leading platform for creating and operating interactive, real-time 3D content. Unity platform provides a comprehensive set of software solutions to create, run and monetize interactive, real-time 2D and 3D content for mobile phones, tablets, PCs, consoles, and augmented and virtual reality devices.
In Q4 of 2020, the Monthly Active Users who consumed content created or operate with Unity, reached on average 2.7 billion per month in over 190 countries and territories worldwide and the applications developed by these creators were downloaded over average 5 billion times per month in Q4 2020. Games made with Unity accounted for 71% of the top 1,000 mobile games in Q4 of 2020.
You may be wondering why developers love Unity? Developers love Unity for 1 main reason as the Unity platform allows developers to build the application once and deploy it seamlessly across more than 20 different platforms. This does away with coders having to reconfigure the app for different ecosystems. Instead of having to optimize their content for different platforms, now the developers can just focus on optimizing their content.
There are two distinct, but connected and synergistic sets of solutions under Unity: Create Solutions & Operate Solutions.
Create Solutions is a sticky, subscription based model that are used by content creators — developers, artists, designers, engineers and architects — to create interactive, real-time 2D and 3D content. Create Solutions is free until the creator of the game collects over $100K in revenues and then the creator must pay a subscription fee for using the Unity editor tools.
Operate Solutions offer customers the ability to grow and engage their end-user base, as well as run and monetize their content with the goal of optimizing end-user acquisition and operational costs while increasing the lifetime value of their end-users. Operate Solutions uses a revenue share model for monetization tools such as Unity Ads and Unity IAP (in-app purchases). Other Operate Solution tools include deltaDNA (engagement analytics), Multi-play, cloud hosting and orchestration and in-game communications through Vivox. So far Operate Solutions has the ability to scale very quickly with gaming growth, and grows as game usage increases.
“Toyota worked with Unity to create a mixed reality system for diagnostics and repairs for their dealerships and service networks. This was a high-stakes decision because repairs have a big impact on brand perception. Toyota used to manually tag 20,000 pictures to ingest them into a learning algorithm, a process that took about 200 hours. Toyota turned to Unity to build accurate 3D models of the body and engine compartment. This reduced Toyota’s workflow time to 30 minutes, a 400 times reduction.” By CEO John Riccitiello — Q3 2020 Earnings Conference Call
In the latest ARK BIG IDEAS 2021, they mentioned that Virtual Worlds will eventually consist of 3 main components which are Video Games, Augmented Reality and Virtual Reality. According to their research, revenue from the virtual worlds will compound at a rate of 17% annually from $180 Billion to $390 Billion by 2025. As the market leader in this area, I believe that Unity is able to benefit greatly from the growth of the Virtual World Business Market. Based on the latest 2 quarter reports, we can see that the number of active creators on Unity platform continue to grow at a double digit growth for the last 2 quarters and I believe it will continue to grow for next 10 years.
If ARK is right on Virtual Worlds growth, we could see both the global gaming market to grow at a 16% compound annual rate for the next 5 years from $175 Billion to $365 Billion as well as the AR & VR Market to grow at even crazier rate from $3 Billion to $28 Billion by 2025.
Of course, currently Unity is still not in green profit now but I personally like the potential growth that the company is riding on and I believe that they will eventually be profitable over the long run when the Virtual Worlds industry grows and get more matured. Most importantly, Unity has an attractive MOAT, leveraging its cutting-edge game engine with scalable monetization/game optimization services and currently enjoys large barriers to entry to this market.
With the latest Q4 result out in February 2021, we saw that the share plunge by about $40 to currently about $100–110 range. Personally I have been collecting it on weakness, there is no sign on how low it can drop so I am buying it at different price batches.
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