PaaS Strategy Makes The Unity IPO Soar

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Analysts estimate that the global online gaming industry will grow from $152 billion in 2019 to $196 billion by the year 2022 at a CAGR of 9%. Mobile gaming share is estimated to grow from 45% in 2019 to just under 50% by 2022. During the same period, console gaming share is expected to remain mostly flat at 31% while PC gaming share is expected to decline from 23% to 20%.

Unity’s Offerings

San Francisco-based Unity was founded by David Helgason, Joachim Ante, and Nicholas Francis in 2004 as a technology company to provide multiplatform tools and services and help create and operate interactive 3D and 2D content. Unity’s services took off when the iPhone was launched in 2007, and since then, it has moved to higher-quality productions and tools. Its customers not only include game developers but also artists, architects, filmmakers, and automotive designers who utilize its services to build other interactive apps.

Content built on the Unity platform delivers a more engaging and immersive experience for end users than traditional static content. The interactive feature not only helps end-users connect with the content but also with one another. Its real-time feature allows it to instantly adapt to end-user behavior and feedback.

3D content on Unity shows shape and depth, allowing developers and users to permit multiple viewing angles, and enable augmented and virtual reality. It also allows for collaboration between creators, helping them visualize and iterate on their 2D and 3D creations in real-time and edit content simultaneously. Besides helping build better content, it also leads to significant reductions in design and development cycle times.

According to Unity, apps created on its platform record more than 3 billion downloads a month. Over 120 million gamers on an average per month communicate across its platform using either voice or text capabilities. Its platform is available in 190 countries and its developers start around 150,000 new projects every day.

Improvements in computational power, greater connectivity and the proliferation of devices like smartphones, PCs and consoles have led to an explosion of immersive and interactive content. While these trends have helped other app developers as well, it is the gaming industry that has benefited enormously from these factors.

Keeping in mind the growing importance of cloud offerings, last quarter, Unity launched Cloud Content Delivery, a network aimed at simplifying costs, keeping app size down, and providing scale to small and large studios alike. Cloud Content Delivery is an end-to-end solution for storing, managing, and deploying content releases. It was built to run cloud-based games as efficiently as possible, while consistently keeping players engaged.

Unity’s Financials

Unity was a privately held company till last September. It had raised $1.3 billion in nine funding rounds from investors including D1 Capital Partners, Light Street Capital, Bienville Capital Sequoia Capital, Canada Pension Plan Investment Board, Silver Lake, Altimeter Capital, and DFJ Growth. Unity went public in September last year when it raised $1.3 billion at a valuation of $13.7 billion and by selling stock at $52 each.

It recently reported its third quarter results where revenues grew 53.3% to $200.8 million. Adjusted loss was $0.09 per share, surpassing market estimates of a loss of $0.15.

In key metrics, customers that generated more than $100,000 of revenue in the trailing twelve months as of September 2020 grew to 739 compared to 553 recorded a year ago. Dollar-based net expansion rate improved to 144% compared to 132% a year ago.

Unity expects to end the current year with revenues between $752-$756 million. It forecast revenues of $200-$204 million for the current quarter.

Unity’s PaaS Strategy: Platform or API

Developers on the Unity platform can build games and applications that can be deployed and operated across more than 20 platforms, including Windows, Mac, iOS, Android, PlayStation, Xbox, Nintendo Switch, and other augmented and virtual reality platforms. Access to the Unity platform is available on a freemium model. While individuals can access and start building on the platform for free, Unity has multiple tiers for other developers. Access to the platform costs anywhere from $399 per year per seat for companies with revenues or funding of less than $200,000 per year to $200 per month per seat for organizations with larger revenues or funding and bigger seat requirements.

Unity’s PaaS Strategy: Developer Community

Unity’s multi-platform engine and development tools have had strong growth in its developer community. It attracted an impressive one million developers within the first seven years of the release of its platform. The next million come at a faster pace with developers doubling to 2 million in 2013. When Unity went public last year, it announced that it had a more than 1.5 million monthly active creators on its platform.

Unity’s PaaS Strategy: Marketplace and Metrics

According to Unity, apps created on its platform record more than 3 billion downloads a month. Over 120 million gamers on an average per month communicate across its platform using either voice or text capabilities. Its platform is available in 190 countries and its developers start around 150,000 new projects every day.

Unity has leveraged the PaaS strategy successfully. Read my recent article Which SaaS Players Will Win in PaaS to understand how to leverage this high growth PaaS market.

Unity’s stock has grown rapidly since listing. It is trading at $154.18 with a market capitalization of $40.6 billion. It had touched a 52-week high of $174.94 in December.

Disclosure: All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article.

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Photo Credit: ChristianaT from Pixabay