How to treat meta-universe concept stock-Unity

Before, many friends asked me what the stock of Yuan Universe recommended. From a deterministic point of view, what I recommend is$Meta Platforms, Inc.(FB)$ Hegel shares$Goertek Inc.(002241)$ The former is the company with the most perfect meta-universe ecology at present, with the best selling VR helmet brand and software ecology in the world, while the latter accounts for 80% of the OEM volume of VR helmets in the world. Both companies are profitable at present. In 2021, both revenue growth and profit growth will exceed 30%, and the growth will be as visible to the naked eye as Tesla and electric vehicles.

The increase of winning numbers's stock is linked to his profit increase. For example, if the expected profit growth rate of Goer shares in 2023 is 35%, I will hold it patiently for one year and expect to get a 35% stock price return. Of course, this is an ideal state, leaving aside other factors affecting the stock price, the most important of which is the valuation. Valuation is an art. Both public funds and private funds have their own logic for valuation. If the concept of meta-universe is more popular in the future, related companies can tolerate higher PE. On the contrary, if the development is not as expected, the PE will be lower and the stock price will come down.

For some investors who don't like winning numbers and like to pursue stimulation to get higher returns, they will be more willing to invest in companies with stronger uncertainty, more possibilities at the boundary and no profit yet. Because of poor expectations, these companies buy when everyone is generally not optimistic. When the valuation expands or the revenue growth accelerates, the stock price will explode faster, so let's talk about it today$Unity Software Inc.(U)$ This company, as well as many small partners, asked me to help analyze it. In fact, I have been paying attention to Unity for a long time, and we need to determine two things: 1. Whether Unity is the pure target of meta-universe, and whether it will bring him valuation expansion. 2. Aside from the concept of meta-universe, whether it has high growth and can exchange time for space. If the above two answers are Yes, then Unity can be held. I will analyze Unity from the perspective of fundamentals and valuation level.

Unity is a 3D engine company established in 2004, which is mainly used in games, movies, construction and other industries, among which games are its main source of revenue.

What is a game engine

Games, virtual worlds, and digital simulations all rely on code, or "engines," that originate from the bottom. The engine is in charge of everything in the digital world-decision logic, rules, physical connections (for example, because you pressed the X button on the PS5 handle, gamer 1 fired a bullet from position A to position B, seriously injuring gamer 2), to real-time visual effects, sound effects, artificial intelligence, memory and network management, etc. Although every game requires an engine, most game manufacturers (developers and publishers) choose third-party engines to build and operate games. A good way to think about this problem is to think about movies and TV programs. When Marvel and Disney make movies, they don't need to independently design and manufacture cameras, editing software, data warehouses, etc. Content manufacturing companies only focus on creating works.

However, the complexity and scope of the game engine suite far exceed those of the film and television industries. First of all, it is much more difficult to maintain the underlying physical mechanism when multiple players play games in real time than to grab frames and arrange them in sequence. Secondly, the technical capabilities of game engines are growing in depth (such as visual optimization) and scope (such as adding AR, VR, real-time voice transcription and other technologies). In addition, to successfully implement these functions without affecting the game experience, the designer of the engine needs to deploy for hundreds of games and thousands of different devices.

What is the current mainstream engine?

Until today, there are only two mainstream engines in the industry-Unreal and Unity.

Unreal is often considered to be most suitable for developing visually rich games, especially multiplayer games played on consoles and PCs. It makes most of its profits through licensing fees, usually 5% of a game's revenue, which developers can buy out in advance.

Unity is easier to use and more flexible than Unreal, but it is also more limited at the technical level. Therefore, Unity is more suitable for developing mobile games. Up to now, Unity is the most mainstream engine for mobile games, which means that Unity is the most widely used engine. Second, Unity does not charge revenue share, and developers pay a small monthly fee to use the software, just like most design software, such as Adobe Photoshop, Autodesk AutoCAD and so on.

Unity operates one at the same timeA mobile advertising network makes it easier for developers using Unity to make profits. In this way, developers don't have to bother to find, integrate and manage third-party advertising channels, let alone hire their own advertising sales teams. Therefore, they can focus more on game design and creativity. According to statistics, Unity publishes 23 billion advertisements on 2.2 billion devices every month. In the past, mainstream game publishers, such as Blizzard or Take-Two, often used independently developed engines instead of Unreal or Unity. The game scale, huge revenue and strong team of engineers of mainstream developers mean that they can build excellent game engines independently. However, the overall performance of these publishers' dedicated engines is usually not as good as that of Unreal and Unity. Although extreme graphic fidelity or top physical sense can be a good selling point of a game, in essence, any game can succeed because its content is very interesting.

The use of third-party engines has grown dramatically in the past 15 years, and even most large publishers now use third-party engines. For example, Nintendo's 2019 Switch game "Yoshi's Crafted World" uses Unreal, and Blizzard's "Hearthstone Legend" is based on Unity. Most new game studios are also using Unreal or Unity.

Fortress Night uses Unreal's engine

Applications outside the game industry

The two biggest film and television works in 2019, "The Lion King" and "Mandalorian", are almost all based on Unity and Unreal respectively. The entire scene of "The Mandalorian," from the unknown world of ice and snow, to the Nevarro Desert Planet and the Sorgan Forest-and almost every remaining scene, was filmed on a virtual stage in Manhattan Beach, California.

The Lion King uses Unity to make special effects

The application of game engine is very important: it only achieves movie-level visual effects and more than twice the time optimization for half of the director's budget. At the same time, it also brings great flexibility to photography.

In the past five years, some urban planning, construction and automotive engineering companies have shifted their workflow and design to Unreal or Unity. This not only makes their models easier and finer to render, but also makes it possible to simulate and display all functions around these models. For example, Hong Kong International Airport uses Unity to simulate changes in passenger volume.

At the same time, a construction company can easily provide potential customers with a virtual reality model, which allows customers to actually explore through touch screen, mouse or VR helmet, or test under various weather conditions. If selected, its customers can get a digital replica of the site-even before the physical building lands.

In addition, engine manufacturers can use their influence to promote, accelerate and even subvert many other fields. Unity has used its influence in mobile gaming to launch one of the largest mobile app advertising networks in the world. When this network is large enough, its market leadership position is difficult to be quickly weakened. Theoretically, an airplane can change its engine during flight, but a game can't change its engine after it is released.

Generally speaking, Unity is widely used in the mobile game market, and it has a very perfect advertising network, which has advantages for small and medium-sized game developers. There is no either-or relationship between Unity and Unreal. The application market prospect of 3D is very broad. The improvement of meta-universe ecology will accelerate this process. When the cake is big enough, many subdivisions will be derived. It can be said that the boundary of Unity is still very vague.

Valuation level

At present, Unity's market value is about 40.5 billion US dollars, and its operating income in 2021 and 2022 is expected to be 1.09 billion US dollars and 1.4 billion US dollars. It is estimated that the annual revenue growth rate in 2021 will be 39.4%, and the revenue growth rate in 2022 will be 44.5%. The current market value corresponds to the market sales rates in 2021 and 2022, which are 37 times and 29 times respectively. In terms of valuation, the current price is really not cheap.

If we compare the valuation of SAAS, the market sales rate of 40-50% revenue growth is usually about 15-25 times. For example, TWLO, a cloud communication company, is expected to grow by 57% in 2021, with an estimated revenue of 2.77 billion US dollars and a market value of 44.2 billion, corresponding to a market sales rate of 16 times.

However, in terms of stock price performance, U fell by 6.83% as a whole in 2021, with the lowest reaching 76 and the highest hitting 210. The fluctuation in the middle is very large, and the increase of 110-210 happened to be when the concept of meta-universe was hot, so the rise of stock price was largely driven by the expansion of valuation, so it is understandable that Unity enjoys a higher premium than other software companies in valuation. Unless Unity's revenue greatly exceeds Wall Street's expectations in the next 1-2 years,This possibility also exists. In terms of safety, I think the stock price below 100 can be bought with confidence, the valuation is reasonable, the growth is relatively certain, and there is a certain valuation premium.

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Modify on 2022-01-04 23:09

Disclaimer: The above content represents only the personal views of the poster and does not constitute investment advice on this platform.




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