3/28/2023 0 Comments Unity software![]() ![]() Priced at just US$300, it sold 1.1 million units in Q4 last year and approximately 3 million in total to date. Last year, Oculus launched what is unquestionably the best value-for-money VR headset: Oculus Quest 2. ![]() Indeed, Facebook – owner of Oculus – is making sure of this: approximately one fifth of all Facebook employees today – or 10,000 employees – are currently working on Facebook’s VR/AR efforts. Over the course of this decade, it is highly-probable that VR/AR will become significantly more ubiquitous. It is, therefore, almost certain that Unity will continue to be a long-term winner in the VR/AR gaming space. Indeed, one of Unity’s core advantages loved by its developer community is the ease with which content assets can be converted between platforms – including VR and AR. Unity is a near-monopolist in AR/VR content creation: approximately 70% of all global AR content and 90% of all global VR content is made by Unity. Opportunity #1: Virtual Reality (VR)/Augmented Reality (AR) in gaming Unity is a high-probability winner in at least three big long-term opportunities We believe this business is undervalued today – and likely materially so, given its three big long-term opportunities. But in the context of a business which is so drastically under-monetising today, its multiple of future revenues is very much lower. Such a multiple is usually considered very high and likely overvalued. Unity’s market value today is approximately 30x its revenue. This will no doubt change over time and represent a larger, higher-margin opportunity than advertising for Unity. And yet, Unity typically does not share in this revenue today (Epic Games does, on the other hand). IAP typically accounts for 60-70% of total publisher revenue. One logical opportunity lies in IAP, for example. So for clarity, I 100% agree with the sentiment and I want to get there one brick at a time over the course of the next handful of years…” I don’t think they are wrong … I believe we can increase our business in gaming as much as 10X and that’s what we’re after. When I talk to people in the industry, they have a mental picture and it must be at least 2%, 3%, 5%, 10%. “ Our take rate in gaming overall is not high. Here’s what CEO, John Riccitiello, had to say about Unity’s monetisation recently: In a global gaming industry that generates approximately US$250B in annual revenues (and growing), it is striking that Unity, as an entrenched duopolistic mission-critical platform for games development, generates less than US$1B in annual revenues today. Unity is drastically under-monetising its gaming engine today – an intentional strategy to drive adoption, solidify further its world-leading ecosystem and strengthen its data advantages. And while Unity’s ad business will face headwinds associated with Apple’s proposed changes to user tracking across apps, we believe it will fare relatively better than alternative networks, given its large-scale, unique dataset on the contextual behaviour of most of the 2.7 billion players of Unity games each month. Advertising accounts for approximately 80% of this segment today. Operate segment (approximately 60% of revenue) – revenue from at least a dozen solutions offered to developers to help improve the growth and value of their game (including advertising, in-app purchases (IAP), analytics, multiplay and cloud solutions).Indeed, 77% of Unity’s total revenues stem from just 793 customers today. Importantly, however, the overwhelming majority of the 1.5M monthly Unity users from more than 190 countries around the world use Unity Personal which provides nearly all the functionality of Unity Pro but is free. Create segment (approximately 30% of revenue) – revenue per developer seat to access the engine: Unity Pro is US$150/seat/month. ![]() Unity generates most of its revenue in two key ways: Games made with Unity account for 71% of the top 1,000 mobile games (Q4 of 2020). Whether you are 80 years old or 8, you are using your mobile for entertainment, spending approximately three hours per day on your smartphone (based on US statistics). Unity is the undisputed global leader in mobile gaming – which itself, is becoming universal. (Over half of Nintendo Switch titles are made with Unity, for example). The scale, complexity and developer communities associated with each of these engines have become so great that it is simply not viable to build and maintain an independent engine – even for the world’s largest gaming publishers. These provide a set of software solutions for developers to create, run and monetise interactive, real-time 2D and 3D content for phones, tablets, PCs, consoles, and augmented and virtual reality devices. Video games are increasingly developed on one of only two games engines: Unity or Unreal, owned by Epic Games. ![]()
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