Unity is the most popular software for developing interactive, real-time 3D content.
Unity was used in the creation of 71% of the top 1,000 mobile games.
Over the last two years, Unity’s revenue has increased by 41% yearly.
Unity Software ( NYSE: U ) has proven to be a rewarding investment since going public last September. The stock has risen 94 percent in less than a year while falling 23% from its 52-week high.
Nonetheless, it appears that now is an excellent time to add Unity to its portfolio. Because its business is dependent on numerous significant trends, including video games, virtual reality, and artificial intelligence, its stock price could skyrocket in the next five years. This is why.
Unity has a big market opportunity
Unity is a software development firm. Customers may use its platform to produce, run, and monetise interactive 2D and 3D content on a variety of platforms, including smartphones, gaming consoles, and augmented and virtual reality headsets. Game creators, for example, use the Unity engine to render characters and virtual landscapes in real time, allowing them to realize their creative ambitions.
However, the Unity platform has applications in a variety of fields. It can be used by architects to plan construction projects, automakers to render automobile models, and filmmakers to create and edit animated scenarios.The Unity platform may also be used to train artificial intelligence models, such as those used in autonomous vehicles or robotics.
Unity anticipates a $33 billion market opportunity by 2025, with $16 billion coming from the gaming industry and $17 billion from various use cases. However, when technology like the meta-universe progresses from science fiction to reality, that number should rise in the future.
Unity dominates the gaming industry
Creating 3D content has traditionally been costly and time-consuming. Engineers have to devote a significant amount of time and resources to developing the essential technologies in order to build even the most basic interactive experience. Even so, they had to recode content for each platform separately (e.g. Windows, Mac, Xbox, PlayStation).
These issues are resolved by Unity. Its real-time software enables creators to render and change content at the same moment, reducing development time. Unity-created content may be published to over 20 different platforms without writing a single line of code once it’s finished. Furthermore, Unity Ads and Unity IAP, which make it simple to sell ad space and in-app purchases, allow artists to monetise their games.
Unity has become the most popular game development engine due to its strong value proposition. Unity was used to develop 71% of the top 1,000 mobile games in the fourth quarter of 2020. Moreover, Unity was used by 94 of the top 100 game production teams.
Unity is growing fast.
Video games have become a rapidly expanding industry, with mobile gaming representing the industry’s largest and fastest-growing section. As a result, Unity software tools are in high demand. In fact, the company’s platform had 1.4 million monthly active content providers last year.
Unity’s platform streamlines design and collaboration by replacing paper-based processes with real-time, interactive 3D content, which is in great demand in industries including construction, manufacturing, and entertainment.
Combined, these growth factors have helped Unity achieve impressive revenue results over the past two years.
What’s more, Unity’s revenue is gaining momentum. In the most recent quarter, sales were up 48% year-over-year, marking the 11th consecutive quarter in which the company’s revenue grew 30% or more.
Be aware that Unity is unprofitable under GAAP, and the company has earned $120 million in negative free cash flow in the last 12 months. These measures should be monitored by investors, but they are not a top priority. Unity is in a fast-growing business, therefore it makes sense to invest more in order to gain market share. This is precisely what management is doing.
The larger picture: real-time interactive 3D content has become a valuable tool in a variety of businesses, and Unity is profiting on this trend. Unity’s share price may easily quadruple by 2026 if the company maintains its 30% growth rate over the following five years, with no change in the price-to-sales ratio.