How far is the road to the giant from the US stock Nuggets Cosmic Engine Unity

ABSTRACT: There will be light at the end of the tunnel

By Gin

Unity was founded in 2004 as a cross-platform 2D/3D game engine. It can be used to develop stand-alone games on Windows, MacOS and Linux platforms, video games on game console platforms such as PlayStation, Xbox, Wii, Nintendo 3DS and Switch, and games on mobile devices such as iOS and Android.

Here's the key: Unity engine can also be used in VR, AR content, movies, automobiles and other industries and fields. Friends who see VR/AR should understand that this company is the shovel seller of Orthodox Meta Universe.

In September 20, Unity logged into Nasdaq, and its stock price performance in the past year was as follows-

From the end of 20 to the beginning of January last year, Unity's share price rose all the way with the big market. However, since inflation expectations and growth stocks killed the valuation in late February, the stock price has also dropped sharply, and then it has been repaired with a slight shock. Until Q3's financial report exceeded expectations, and under the background of the hot concept of meta-universe (Facebook changed its name to Meta, Roblox's financial report exceeded expectations, and Apple may release AR glasses in H2 in 22 …), Unity's share price experienced a wave of violent pull-up. However, in December, inflation, taper's real hammer and strong interest rate hike expectations occurred frequently, and growth stocks killed valuations, especially SaaS companies that are still losing money, and Unity is in the forefront.

So what are the fundamentals of Unity? How will the future go? We will analyze it in detail below.


01 Business Model and Industry Space


According to the 20-year annual report, Unity has reached an average of 2.7 billion active users of terminal games every month, with over 1.4 million active developers. The download volume of apps created by Unity platform is as high as 5 billion times a month, and 71% of the top 1000 mobile games in the world are developed by Unity-Unity is undoubtedly the first engine in the game field.

Unity business can be divided into three sections: development plan, operation plan and strategic cooperation.

L Create Solutions: Provide a platform for developers to interact with games, engineers, etc., and develop real-time 2D/3D content. The profit model is paid subscription (rent collection), accounting for 30% of revenue in 20 years.

L Operate Solutions: Help developers realize the games/content they develop (through advertising, content distribution, one-stop networking, server hosting, resource store, cloud build, etc.). The profit model is profit drawing (shared profit income) and service fee based on use. 61% of revenue in 20 years-we think this is especially important for Unity's future development. (Similar to Tencent's empowerment)

Strategic Partnerships: Work with peers/partners to provide services for developers. 20 years accounts for 9% of revenue, and the profit model is fixed expenses, which is not the focus of development.

It can be seen intuitively from the above figure that the growth rate of the operation plan (black column) is faster, and the proportion of revenue is gradually increasing. Behind it, we can see Unity's strategic thinking-upgrading from pure selling tools to ecological shaping, helping customers succeed and achieve themselves. This trend can also be seen from the growth rate of major customers:

Unity's customers with an annual income of more than 100,000 US dollars gradually increased with time, from 389 in 18Q1 to 973 in 21Q3, which means that Unity has transformed more and more small and medium-sized customers into large customers, and can establish long-term cooperative relations, and the ecology is getting better and better.

This trend can also be confirmed from NRR (Net Expansion Rate). The NRR calculation method is 12 customers in the same batchMonthly spending is tracked and compared. For example, the data of 21Q3 is 142%, which means that the customers tracked from 20Q3 have increased their spending by 42% a year-which is also the root of exponential growth. There are more and more customers, and their spending is also increasing.

In addition, it can be seen that NRR has basically remained at the level of 140% after reaching a higher level from 20Q2, and this level is also the best among SaaS companies, and only about 120% is generally in the upper middle. There are factors of Unity's own ecological operation ability and the big environment.

According to Newzoo statistics, the global game market has increased from 70.6 billion US dollars in 12 years to 177.8 billion US dollars in 20 years, with CAGR 12.2%, and is expected to exceed 200 billion US dollars in 23 years. In terms of growth rate, there have been great fluctuations in recent years, mainly due to the 17-year "chicken-eating" mobile game fire and the 20-year epidemic situation.

In addition, in terms of sub-sectors, mobile games have increased by 7.3% to US $93.2 billion in 21 years, while computer and console games have experienced negative growth to a certain extent, which is also reflected in the stock prices of established game companies such as Blizzard and EA.

From the above figure, we can intuitively see that mobile games have exploded in the past 8 years, and their scale has increased about 8 times. Another interesting data is that from the category point of view, the biggest change after 20 years is the proportion of 2D and 3D games (pie chart black and red). It can be seen that the proportion of 2D games has shrunk greatly, accompanied by the substantial growth of 3D games, and casual games have also increased in a relatively large proportion. This is undoubtedly a good thing for Unity, which has strong 3D design ability.

When it comes to 3D technology, it is natural to talk about meta-universe. With regard to the meta-universe, the industry has experienced the discussion for about half a year, and the basic direction is relatively certain. Generally speaking, it follows the path of the movie "No.1 Player". When it comes to hardware carrier, VR/AR glasses should be measured first. Meta is at the forefront, Oculus Quest2 series is basically a small explosion, while Apple is also expected to start shipping AR glasses at the end of this year, and Microsoft and Google have also indicated that they will enter this field and roll together.

Unity's role in the meta-universe is the content engine, so at present, the core indicator to follow is VR/AR shipments (other games and other content are expected to be basically mature), while from the perspective of shipments and cost performance, it is mainly Quest2 produced by Meta.

According to Counterpoint's Global XR (VR & amp; According to AR) Model Tracker, Extended Reality (XR) headline shipments tripled year-on-year in Q1 21, and it was Meta's Quest 2 that drove these sales. As can be seen from the black part of the figure, Quest2 shipments began to grow rapidly in 20Q4 (when Quest2 was released), reaching a maximum of 75%, while the market share of other established players such as Valve, Pico (it was reported in August this year that ByteDance will be acquired with 5 billion yuan) and Sony shrank rapidly.

The latest data comes from Qualcomm, which works closely with Meta. CEO Amon said at the investor conference in mid-November that the sales volume of Quest2 may have reached 10 million units. This data is very exciting, because as early as 19 years ago, Xiaozha said that 10 million users were the key threshold for "VR-related ecosystem explosion". This is a good signal for both Meta and Unity.

In addition to the meta-universe, Unity has expanded its application fields to a large number of industrial scenarios. For example, it is used to build digital twin applications, help owners, designers, engineers, constructors and other parties in the engineering construction industry to experience and interact with realistic 3D models in virtual environment, accelerate design iteration, and realize digital construction guidance and personnel training. These shouldIt is expected to further open up the market space in the future.

To sum up, Unity's strategic layout is inclined to the operation plan, and it achieves together with customers, and the business ecology continues to develop well. In terms of market space, benefiting from the steady development of games, the vigorous expectation of meta-universe and the potential space in other industrial fields, Unity has very strong growth potential.


02 competition analysis


In the field of game engine, Unity and Unreal Engine are old rivals. From the development in recent years, Unity is better.

In 10 years, the market share of Unity and Unreal was 2.5% and 5.1%, respectively, but in 21 years, this figure became 49.8% and 9.68%. While the industrial concentration increased, the growth of Unity was undoubtedly more legendary, which can be said to firmly grasp this wave of mobile Internet/game development.

By detailed comparison, Unity is more friendly (language and interface are relatively simple), which is also an important reason why it has become phenomenal software. In terms of production quality, the industry generally believes that Unreal has higher quality and is the first choice for 3A game development. However, Unity has stronger compatibility, and after the acquisition of weta in November last year, image development tools will be implanted in the future, and the image quality is said to surpass Unreal, which is worth looking forward to. In fact, from the past explosions, Unreal produced "Peace Elite" and "Fortress Night", while Unity produced "the glory of the king" and "Legend of Hearthstone", which are comparable.

Unity and Unreal both provide visual programming tools, and the blueprint visual programming system provided by Unreal is more powerful and officially free. However, most game companies implement "de-blueprint" for better performance release, which weakens this advantage of Unreal. Unity's PlayMaker is a third-party plug-in for a fee.

To sum up, Unity and Unreal have their own advantages. Although they are not as good as Unreal in quality, they are expected to improve and surpass after the acquisition of weta. In terms of industrial structure, the visible future is still to maintain the duopoly pattern of Unity and Unreal, both of which have good room for further growth.


03 Valuation and Risk

Unity's valuation experienced large fluctuations in January-March and November-December last year, and the reasons were also analyzed above. It can be seen that the EV/Sales of Unity is about 36.2 x at present, which is in a relatively low historical valuation position, but it is still relatively high compared with other peers-leading CRM and ADBE are about 10x and 16x respectively.

Despite the killing valuation, Unity's share price still has a premium. The main source of this premium is the huge imagination space of meta-universe (some institutions think that the overall market size has exceeded one trillion dollars). Supported by the increasing delivery of VR/AR glasses, Unity is expected to achieve 30% + cagr in the next three years, and EBITDA is expected to turn positive within two years. In terms of valuation, Unity has limited room to continue to kill, and it is expected to be maintained and repaired under the expected financial report.

In the medium and long term, Unity's business ecology and moat are very promising to promote it to become a giant, and it is worth focusing on the opportunity to get on the bus after the valuation of growth stocks stabilizes. The risk points mainly lie in the financial report falling short of expectations (mainly in EPS, the loss may exceed expectations, and because of the pressure of acquisition cash flow), the continuous pressure on valuation under the tight macro environment, and the change of industrial competition structure (small probability event).

$Unity Software Inc.(U)$$Meta Platforms (FB) $$Roblox Corporation(RBLX)$

# 我的小调研

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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Comment23

  • 无法盈利变现 还是差点儿
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  • 可以,美股现在还能支撑多久

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  • 元宇宙后期就是个游戏平台,首选代理商腾讯控股
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  • leoguml
    ·01-10
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  • LeoFang
    ·01-08
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  • 666
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  • 尚上品
    ·01-08
    没有高盈利的故事
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  • 品亿
    ·01-08
    厉害
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  • [强]
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  • 任务
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  • andylaufox
    ·01-08
    good
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  • 牛逼
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  • 再也
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  • 潇湘yeyu
    ·01-08
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  • 被你的文章打动了,现在还有点仓位,能不能杀进去?
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  • 魔兽世界是不是​$Unity Software Inc.(U)$ 开发的?
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  • Unity这么高的市场占有率,就算坐吃,短时间也很难被超越。
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  • 这个行业比较有前景,参照腾讯的收入结构,很有爆发力。
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  • 第一次如此详细全面的了解这家公司,说实话,看完还是蛮激动的,感觉又看到了宝藏。
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  • 说是Unity和Unreal是对手,其实就不是一个量级的。
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