[UNITY Software]Unity stock price outlook, why unity software stocks are not only game-related stocks

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The following is a survey analysis written by a general individual investor, not a stock investment expert, for stock analysis. Please note that this article does not contain all information.

 

 

It was based on objective materails as much as possible, so I hope this helps for you. Before begin writing, keep in mind that you are responsible for making all investment decisions.

 

 

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Hi? It's LIF(Life is fit)

 

[공지] 인생은핏 LIF 활용법

Today, I would like to share with you, guys, a company called UNITY(Ticker: U), which I recently bought. For reference, I am an investor who believes that the VR/AR market will grow, and acordingly, I am investing by selecting Unity among the stocks that I believe will have good synergy with Facebook.

 

 

The order of the articles is as folloews.

 

 

1) [UNITY] Unity software company introduction and business analysis.

 

2) [UNITY] Unity software financial analysis(performance and funancial ratio)

 

3) [UNITY] Unity stock price outlook.

 

 

So, let's start right away.

 

1) [UNITY]Business analysis to examine unity's stock price outlook

What Does Unity Software Make Money?

Source. Unity Software official website

Unity Software is a company that generates sales from three major beneficiaries.

 

 

1. Unity game engine(subscription-type revenue model) : a production platform for game makers

 

Unity is a company whose main business is to provide a game engine that serves as a drawing ground for several popular games such as Heartstone, Land of the Winds : Yeon, Pokemon Go.

 

 

Currently, a subscription-type license service is provided to game makers, and a total of four subscription models are provided.

 

 

It consists of a free version for students, Personal version, plus(479,990 KRW per year), pro(2,160,000 KRW per year), and corporate(240,000 KRW per month).

 

 

As of the end of 2019, about 53% of the top 1,000 mobile games in the world's revenues were powered by Unity engines, and more than 50% of the combined mobile/PC/console/top mobile games accounted for more than 50%.

 

Source. Unity Software official website 

In addition to game makers, companies working with Unity include console game companies such as Xbox(Microsoft), Playstation(PS4), Playstation VR, Microsoft Software HoloLens, Oculus VR(Facebook), and Gear VR. 

 

 

One of the biggest competitors among game engine companies is Epic Games' Unreal.

 

 

In the case of Unreal, unlike game makers who receive 5% royalties for each quarterly sales exceeding $3,000, Unity is not requesting a separate royalty payment, which is expected to increase its share even further.

 

 

2. Unity Ads: Ad revenue

 

Unity's second revenue model is advertising revenue through Unity Ads.

 

 

Compared to the industry average, the effective viewing rate and video viewing comletion rate are far higher than the industry average, so advertiser's love calls are expected to continue in the future.

 

 

In addition, as the VR market grows in the future, as the market dominance of the virtual reality platform, referred to as meta-verse, increases in collaboration with the game market, Unity ad revenue is expected to increase from now.

 

 

As shown below in the picture, the Unity ad revenue generation format includes 'rewarded app ads' which provide game points necessary for users while playing a specific game as a reward for viewing ads, skppable free rolls, and social click playback types.

 

 

Specifically, there are various methods such as additional rewards, coin rewards, and bonus modes.

 

 

Among them, mobile app rewarded oline video ads provided by Unity are getting the best responcse from consumers, so ad revenue is expected to increase as Unity's market share increases in the future.

 

 

The positive response to mobile app rewarded ads accounted for 68%, which was higher then the skippable pre-roll method(51%) and the social click-to-play method(52%).

 

 

In the case of Unity Ads, the ad revenue model can be applied even if is is not a game based on the Unity game engine, so other game engine-based game markers can also use it.

 

 

3. Unity Asset Store: App store where people can sell and buy development assets such as plugins.

 

Unity's third revenues model is called the Unity Asset Store , a store that distributes and sells development assets. Simply put, you earn money by selling your desired development assets to game makers, such as the App Store or Play Store.

 

 

The difference is that while you can download the application from the App Store or Play Store, you can download development assets such as 3D templates, sound sets, visual effects, and 2D game templates from the Unity Asset Store.

 

 

From simple design modeling to plugins that add functionality to the Unity engine, you can use development assets, and it is the largest among asset stores selling development assets in terms of sales.

 

 

Usually, the commision rate is around 30%, but as competitor Unreal's Unreal Engine Marketplace is receiving only 12% commision, so there is a possibility that the commision rate will be lowered.

 

 

Unity Software advence industry(Games are not everything Unity have)

From what we've looked at so far, Unity Software stock can only be seen as a game-related stock. However, the reason unity software stock is attracting attention is that it is highly utilized not only in games but also in various industries.

 

1. The game

 

I won't go into further comment on this company's performance and expectation in the game field, as I've already covered before.

 

 

2. Automotice, transportation and manufacturing

 

Unity provides solutions to improve product design, engineering, manufacturing, marketing, and maintenance practices in the automotive, robotics, transportation and manufacturing industries using real-time 3D software and technology.

 

 

Unity has already collaborated with Audi in Germany and Toyato in Japan, and these companies have also used Unity's VR/AR devices and software in vehicle design, engineering, and education.

 

 

You can see that it is playing the role of 'Dassaut Systems' in France, a 3D software solution company that I previosly introduced.

 

 

3. Film, Animation and Cinematics

 

Unity is driving revenue in the film, animation and cinematic industries as well as offering solutions that can be used in the industry.

 

 

While providing a real-time workflow for animation content creators, while speeding up existing pipelines, rendering can also be implemented in real-time without taking hours or days.

 

 

In addition, Unity allows multiple artists to collaborates as well.

 

 

4. Design, Engineering and Archtecture

 

Source Unity official website

Finally, Unity provides solutions that automate the creation of 3D materials, such as the 'Unity Art Engine'. which can reaslize ultra-realistic content in the fields of interior, design, and architecture, and engineering.

 

 

In addition, a tool called Unity MARS allows you to create intelligent mixed and augmented reality experiences that are fully inegrated into the real world. It is also a useful tool when laying out furniture for a building or creating blueprints.

 

 

In the field of architecture, as in the photo above, it has been recognized for its proctical useness, such as using AR tools to preview and work on the layout in real space before construction.

 

2) [UNITY] Financial analysis before unity stock price forecast(performance and financial Ratio)

Unity Software's recent 4Q earnings / Source Yahoo Financial

Before we look at Unity stock price forecast, let's first look at Unity's financial statements. Unity's total sales for 2019 are approximately $540 million, and this year's target sales is $756 million.

 

 

Unity's operating profit is currently in a deficit, and sales have steadily increased every year, reaching $200 million (about $200 billion) in the third quarter of this year. Operationg loss was $144.7 million (about 160 billion won).

 

Source Unity IR

 

Based on the forcast announced by Unity through the recent 3Q 2020 result announment, it is said that sales will grow by 27 tp 29% in the four quarter, and operating losses will also be reduced to between $35 million and $40 million that you can see.

 

Source Unity IR

 

As shown above, Unity's sales have been steadily increasing every quarter, and operating losses have increased along with the growth in scale.

 

 

Gross profit margin averages around 77%, and since it is a company that has net yet made a net profit, it is more of a growth stock than a value stock.

 

 

In the recent qurater, Unity's revenue composition was about 9% for strategic partnerships, 60% for operational solutions, and 31% for production solutions.

 

 

In the case of production solutions, it is the revenue from subscription and professional service provision generated through the game engine, and the operationg solution is estimated to be revenue generated from cloud-based service operation or advertising revenue.

 

 

And Strategic Partnerships and Othe Revenue refers to revenue from multi-year development contracts that include the Asset Store.

 

 

Following the graph above, you can see that all sales increased quarterly compared to last year, and in particular, sales growth of 72% occurred in the operational solution segment.

 

 

This is a portion of sales that are expected to increase steadily as Unity's platform dominance increases. 

Unity Software's Recent 4Q Results /Source Yahoo Financial

 

Please check the figure above for specific figures and composition of Unity's recent four quraters of salse.

 

3) [UNITY] Unity stock price forcast(Unity software stock)

Source from yahoo finance

 

As of 25 Aril, 2021 (Korean time), the market capitalization of Unity Software stock is about $28.2 billion. The stock price is at around $102, and the PSR, one of the indicators for growth stocks, is 36.51x.

 

 

PSR of 36.51x is never low figures, and it is unreasonable to say that are undervalued.

 

 

Considering that the stock price was $75 at the time of listing on September 18, it is currently up 50%, and last year, November, it has risen from $96 to $145 in December.

 

 

When the current rating by Mirae Asset Daewoo Securities, the target price was set at $131 by applying 34.3 times the target PSR, So current price, $102 is 'buy price', following to that company report.

 

 

If you are buying now, you should consider at least a two-year investment period, as there is room for further increase when the expected sales of around $1.3 billion in 2022 are archieved.

 

 

If the popularity of the stock rises to about $169, which is equivalent to the expected sales of $1.3 billion in 2022, I think it would be a way to manage it by repurchasing when the price is between $130-135 after selling.

 

 

When investing, please pay attention to the performance announcement and individual business changes of the game industry and Unity companies.

 

 

Thank you for yout attention to my writing, [UNITY software]Unity stock price outlook, why unity software stocks are not only game-related stocks.

 

 

From. LIF(Life is fit)

 

 

※Please keep in mind that you are responsible for making all of your investment decisions. Please refer to the articles and materials of various experts, and make wise investments under your own investment principle.

 

 

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