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  • Writer's pictureHahn Lee

Gaming Platform IPO: Unity Software

August 30, 2020

I am excited about the upcoming IPO for Unity Software, one of the leading platforms for creating and operating interactive, real-time 2D and 3D content. After poring over Unity's S-1 (filed on August 24, 2020), I've learned quite a bit about how they operate and think about their business. The key takeaways are summarized below.

Total Addressable Market (TAM): $29B

  • Gaming ($12B): $12B in 2019 across over 15mm potential creators, growing to over $16B in 2025 (Source: 2020 study that Unity commissioned by a third party strategy consulting firm, Altman Vilandrie & Company). Real-time 3D has had a significant impact in gaming, which has grown from a <$15B industry 20 years ago to one generating $140B in annual revenue today. Gaming is now the fastest growing category in media with over 2.5B gamers worldwide.

  • Industries Beyond Gaming ($17B): $17B today, based on the number of software developers, architects and designers that Unity’s solutions could potentially serve. Six million architects and engineers used to estimate a current market opportunity in the architecture, engineering and construction industries, 37mm engineers and technicians and 5.8mm active software developers using C# used to estimate a future market opportunity in industries beyond gaming. (Sources: Cambashi, The Engineering Software Pyramid, April 2019; SlashData, Developer Economics, State of the Developer Nation, Q4 2019, April 2020).


Select Operating Metrics

  • Active Creators (1.5mm): 1.5mm in over 190 countries and territories worldwide.

  • Application Downloads (3B+): Applications developed by the 1.5mm creators were downloaded over 3B times per month in 2019 on over 1.5B unique devices.

  • Market Share (50%+): In 2019, on a global basis, 53% of the top 1,000 mobile games on the Apple App Store and Google Play and over 50% of such mobile games, PC games and console games combined were made with Unity.

  • Portability to 20+ Platforms: Unity games can be built once and deployed and operated across more than 20 platforms, including Windows, Mac, iOS, Android, PlayStation, Xbox, Nintendo Switch, and the leading augmented and virtual reality platforms, among others.


Financials (more financial statements are included at the end of the post)

  • Revenue - Growing Around 40%: Revenue grew from $381mm (CY18) to $542mm (CY19), representing YoY growth of 42%. Revenue grew from $253mm (1H CY19) to $351mm (1H CY20), representing period-over-period growth of 39%.

  • Profitability - Continuing Losses: Generated net losses of $132mm (CY18), $163mm (CY19). For the 6 month periods ending June 30, losses have slightly narrowed from $67mm (1H CY19) to $54mm (1H CY20). All figures include stock-based comp.

  • Credit Facility Up To $125mm: Credit agreement with Barclays Bank PLC provides for a committed revolving loan facility of up to $125.0mm. It contains a financial covenant that requires Unity to maintain liquidity of at least $75.0mm as of the last day of the most recently completed four consecutive fiscal quarters, which commenced on June 30, 2020. The credit facility is scheduled to mature in December 2024 and interest on the outstanding balance under the facility accrued at a rate of 1.67% as of June 30, 2020.

  • Free Cash Flow Negative; Net Cash Used in Ops Stabilizing?: Reduced net cash used in operating activities from $81mm (CY18) to $68mm (CY19), and from $20mm (1H CY19) to $15mm (1H CY20).



  • Number of High Value Customers Increasing: As of June 30, 716 customers contributed more than $100,000 of trailing 12-month revenue, up from 600 as of December 31, 2019.

  • Geographic Mix - Majority International: Customers outside of the U.S. generated approximately 72% and 76% of revenue for the year ended December 31, 2019 and the six months ended June 30, 2020.



  • Create Solutions: Used by content creators -- developers, artists, designers, engineers and architects -- to create interactive, real-time 2D and 3D content.

  • 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 LTV of their end-users.


Revenue Model

  • Create Solutions - Subscription: Customers typically purchase one- to three-year subscriptions, billed in monthly, quarterly or annual installments. Independent creators and smaller studios typically subscribe to plans with a one-year term that are billed monthly.

  • Operate Solutions - Primarily Rev Share, Some Usage-Based: A substantial majority of Operate Solutions revenue is currently generated under a revenue-share model. The remainder is generated primarily as usage-based revenue. Usage-based revenue primarily comes from the deltaDNA, Multiplay and Vivox products. The majority of revenue from deltaDNA is generated based on the number of active users in the application each month. Revenue from Multiplay is based on a customer’s hosting needs, including use of storage, compute, processing and bandwidth. Vivox revenue is generated by charging customers based on the number of peak concurrent users in any given month and is for free for up to 5,000 concurrent users.


Competitive Strengths

  • Platform: Global reach of over two billion monthly active end-users, who consume content created or operated with Unity solutions on over 20 platforms (as of June 30, 2020); an average of more than 15,000 new projects each day in 1H CY20.

  • Market Leadership in Game Development with Industry-Leading Brand: In 2019, on a global basis, 53% of the top 1,000 mobile games on the Apple App Store and Google Play and over 50% of such mobile games, PC games and console games combined were made with Unity. Ninety-three of the top 100 game development studios by global revenue in 2019 were Unity customers. Games developed on the Unity platform recorded an average of over eight billion hours of gameplay per month in the six months ended June 30, 2020.

  • Focus on Innovation, Talent and R&D: Invested over $450mm in R&D over the last two fiscal years.

  • Data Footprint and Analytics: Capture and analyze valuable end-user behavior and application performance data from over 50B in-app events per day across over 20 different platforms as end-users interact with games and applications made with Unity. This data and analytics capability allows content performance optimization, end-user acquisition and engagement and monetization based on predicted LTVs of customers’ end-users, driving value for both customers as well as their end-users.

  • The Unity Creator Community: Unity has a large, active global community of real-time 3D creators (~1.5mm monthly active creators that developed over 8,000 games and applications per month in the six months ended June 30, 2020). Creators are also engaged with users of Unity Pro spending an average of 4.9 hours per day actively using the platform in the year ended December 31, 2019, and an average of 5.1 hours per day for the six months ended June 30, 2020.



  • Create Solutions: Proprietary game engines built in-house by large game studios, as well as Unreal Engine (Epic Games) and Cocos2d (Chukong Technologies). Outside of gaming, Unity competes with other development platforms that offer 2D and 3D design products.

  • Operate Solutions: Fragmented ecosystem composed of select divisions of large, well-established companies as well as privately held companies. The large companies in the ecosystem may play multiple roles given their breadth. Examples of these large companies are Amazon, Facebook, Google, Microsoft and Tencent. Most of these companies are also partners and customers.


Growth Strategies

  • Investing in Product Innovation for Growth.

  • Growth within Existing Gaming Customers.

  • Growth in New Gaming Customers.

  • Growth in Industries and Use Cases Beyond Gaming.

  • Continued Growth Across All Major Global Markets.


Growth Opportunities Beyond Gaming

  • Architects, Designers, Project Partners: Architects, designers and project partners use real-time 3D to simultaneously contribute to the planning and development of a building with rapid, cost-effective iteration.

  • Auto: Real-time 3D technology is driving efficiencies in car development and sales cycles, allowing for interactive, life-like models of cars to be rendered in real-time.

  • Film: In film, real-time 3D technology allows a creator to edit and review a scene instantly, rather than waiting days for server farms to fully render a digital scene.

  • Other: Augmented reality workplace safety training, online and augmented reality product configurators.

  • Examples:



  • R&D Investment: More than $450mm invested in R&D over the last two fiscal years.

  • Patent Portfolio: 40 issued patents in the U.S. that expire between 2032 and 2038, eight issued patents in non-U.S. jurisdictions, and 79 patent applications (including 20 provisional applications and seven active PCT applications) pending in the U.S. and globally.



  • Completed over a dozen acquisitions to date.

  • In June 2020, signed an agreement to purchase a company that designs and develops version control technology. The deal is expected to close in 3Q CY20.

  • Finger Food Advanced Technology Group (April 2020): Finger Food Advanced Technology Group creates developer applications for a variety of industries, such as automotive, construction, gaming and retail. The total amount of purchase consideration is $46.8mm payable in a combination of $23.6mm in cash and $23.1mm of common stock.

  • Vivox (Jan. 2019): Vivox provides cross-platform voice and text communication tools for social experiences where players can communicate regardless of location in game play, on any platform, whether it is mobile, personal computer or console. Total deal consideration of $123.4mm payable in a combination of $119.0mm in cash and $4.4mm of common stock.

  • deltaDNA (Sept. 2019): deltaDNA provides analytics, messaging and ad campaign management tools to enable real-time player life-cycle management. Acquired 100% of the issued share capital of deltaDNA Limited (“deltaDNA”) for consideration of $53.1mm payable in a combination of $32.8mm in cash and $20.3mm of common stock.

  • Artomatix (Dec. 2019): Artomatix offers artificial intelligence and machine learning powered tools to simplify and automate parts of the 3D art creation process. Acquired 100% of the issued share capital of Artomatix Limited (“Artomatix”) for consideration of $48.8mm payable in a combination of $38.7mm in cash and $10.1mm common stock.

  • Other CY19 Acquisitions: Completed other acquisitions and purchases of intangible assets for total consideration of approximately $8.2mm.

  • CY18 Acquisitions: Completed an acquisition for total consideration of $2.0mm, which includes the assumption of $0.2mm in stockholder loans, payable in cash at the date of acquisition.




Corporate and Other

  • Organization: Originally founded as Over the Edge Entertainment in Denmark in 2004. Reorganized as a Delaware corporation in May 2009 as Unity Software Inc.

  • Headcount: 3,379 FTEs as of June 30, 2020. Approximately 64% of FTEs were located outside of the United States. 1,879 employees involved in R&D and related activities (56% of total).

  • Material Google Cloud Agreement: Unity is party to a cloud service agreement with Google, which commits it to spend an aggregate of $189mm between December 2018 and December 2024.


Financial Statements

More next time...


(Source: Unity S-1)

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