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A person who likes games. Even if you don't necessarily like games, if you have used 3D-supported apps or content, You may be familiar with the logo above. Today it is famous for its 3D game engine, and is even more famous for Vision Pro. Let’s learn about Unity (Ticker, NYSE: U, hereinafter referred to as Unity).
introduction
Unity is a game engine developed by Unity Technologies, founded in Denmark in August 2004. It is a game engine mainly used for low-end, small-scale game development. It did not start out as a game engine from the beginning, Initially, it started as a 3D target web media production tool, It gained popularity due to its ease of development and low licensing costs. Thanks to the growth of iPhone and smartphone games, it has grown into the most popular game engine.
As interest in Metaverse increases and demand for 3D increases due to the spread of high-speed internet, We are continuously attempting to expand technology in various industries, including education, automobiles, medical care, and manufacturing.
How does Unity make money? (Unity sales structure)
Unity’s sales structure is as follows.
Year202020212022Create Solutions372,717506,920716,078Grow Solutions399,728603,606674,946Total revenue772,4451,110,5261,391,024**2020-2022 Unity revenue structure (Source: Unity Software Inc. (U) - FORM 10-K |
Unity's sales structure is largely divided into Create Solutions and Grow Solutions. The Create segment consists of development engine subscription fees and cloud service usage fees. You are charged based on the level of usage (capacity in the case of cloud); Additional fees may also apply depending on the use of plugins to improve convenience or development quality. The Grow division is responsible for assisting with publishing, advertising, and monetization of developed applications. A service fee is charged accordingly. In short, when developers generate revenue through game development, We provide integrated solutions for development (Create) and growth (Grow).
Unity Performance
Below is Unity's performance from 2018-2025 (expected for 2023-2025).
Year2019202020212022P2023E2024E2025ESales Growth42.26%42.44%43.91%25.20%54.49%19.36%17.89%Net Profit Growth23.48%73.01%89.01%72.80%-2.39%-25.81%-24.44%2018-2025E Unity Revenue Growth (Source: StockRow)
Recent performance is excellent. And sales, which can be considered a key indicator of growth stocks, are in double digits. Although it is encouraging to see continued growth expected, It is somewhat disappointing that net profit is turning into negative growth. However, predictions are just predictions. Stock prices move when expectations come true or when expectations are reversed by new momentum.
Unity Investment Points
I want to ride the VR/AR and metaverse trend, but If the growth table above makes you uncomfortable about investing in Unity, The partnership with Apple has not yet been reflected in the above forecast. We need to check further what it means.
**Partnership with Apple means two things to Unity. First, it opens a completely different chapter from the existing PC and mobile game markets. Just like TVs, PCs, and smartphones, Vision Pro will provide users with a completely different experience from today. On the one hand, this means that a field of new content will be opened for users to enjoy, On the other hand, it also means that a new advertising arena will be created during their stay. Unity's business model, Create and Grow divisions, naturally fall into both of these categories.
- **Partnership with Apple (feat. Vision Pro)
The second is that Apple's developer pool is a relatively untapped market for Unity. Apple reportedly has 34 million registered developers. If 5% of these people sign up for Unity’s Pro plan, Unity will receive an additional $3.5 billion in annual revenue.
This is an overly simplistic estimate, but Considering that Unity’s sales as of 2022 were around $1.4 billion, Even if the number of developers brought in through the partnership with Apple is much lower than that, It must be a significant number for Unity.
**There seems to be no clear trend after Roblox, The metaverse and digital twin aspects are still something to look forward to.
- **Metaverse & Digital Twin
In the case of Metaverse, in order for people to use specific services, If it is a type of space that graphically implements the real or virtual world, Digital twin is used to implement or verify a certain purpose. It is a digital twin that embodies the real world digitally.
As everyone knows, Metaverse is created for people’s enjoyment or convenience. Digital twins are used not only in research and development, but also in shopping and real estate. There is endless room for it to be incorporated into daily life.
The difference between the two technologies is actually not very important. What's important is that humanity plays a large and small part in our society. It is self-evident that it will be implemented digitally. In order for the two technologies to reach consumers, the 3D engine will play a key role.
Let’s just go over this part
**There is one company that cannot be left out when discussing the game engine market. It's Unreal. Of course, there will be issues of cost and development convenience. I'm not trying to say that Unity=Low quality, Unreal=High quality, Games that seem overly elaborate and expensive include Unreal, If you think of Unity as a light casual game, it's roughly right. In particular, it is a company that holds a strong position in high-end games. Figure 1 below is a survey of developers about frequently used game engines. The user base using Unity is 66% (Primary(Main) + Also using(Sub)). Although a significant number of users are still using Unity, The number of Unreal users is also significant at 43%. Of course, the numbers in these surveys can vary depending on the questions and criteria, so Although it is difficult to set it as an absolute standard, The article also mentioned that Unity's dominance over its competitors is narrowing.
- **Competitor Unreal
Although Unity seems to be focusing more on entering new businesses such as Metaverse and AR/VR, As more users pursue super reality, Unreal's progress seems increasingly impossible to ignore. It is difficult to see Unreal and Unity as perfect replacements, but Two companies are now in the nascent VR/AR and metaverse markets. How to position it and how it will be imprinted on developers and consumers This is something that must be watched.
Figure 1. Game engine survey targeting developers (Source: SlashData)
Concluding
We looked into Unity, which is considered the biggest beneficiary of Apple Glass. Unity gave back much of its stock price, which had risen due to expectations of explosive growth. It is difficult to say with confidence that the current stock price level is also a fair value.
However, the recent Apple-related news is enough to fill doubts about its growth potential. Regardless of that issue, the metaverse and digital twin issues are still in the realm of expectations. It is clear that it is the most powerful company standing in the middle.