Thread by @marketplunger1

[THREAD]

Unity (prop ticker: $U) filed their S-1 this AM.

I read the filing so you don't have to (but you should).

Here's a thread on what I found interesting, fascinating and down-right incredible from the company.

I'm starting from zero.

Join me: sec.report/Document/00011…

1) High-level Facts & Figures:

These high-level stats impressed me (cc: @ballmatthew ):

- 1.5M monthly active creators

- 50%+ of all mobile/PC/console games made w/ Unity

- 3B app downloads per month (!)

- 15K new projects made per day

- Creators span 190 countries

2) Business Overview

Motto: "We believe the world is a better place with more creators in it. Creators, ranging from game developers to artists, architects, automotive designers, filmmakers and others, use Unity to make their imaginations come to life."

Power to the creators.

3) What Makes Unity Great?

- Offering: $U provides set of software solutions to create, run and monetize real-time 2D/3D content for mobile, tablets, PCs, consoles and AR/VR.

- End-Result: A fundamentally more engaging and immersive gaming experience. Instant adaptability.

4) What Makes Unity Great (pt.2)

- $U offers tremendous scale. They can service huge development teams as well as individual creators.

- Individuals can rapidly create and tweak new games (increases adoption)

- Once built, $U games can run on 20+ platforms (zero barriers 2e)

5) A Two Solution Biz Model

1. Create Solutions: Lets users (artists, devs, engineers, etc.) create 2D/3D interactive, realtime content

2. Operate Solutions (more interesting): Offers cust. ability to grow & engage with user-base, as well as run/monetize content

Let's cont...

5) How $U Monetizes Two Solutions

1. Create Solutions (CS): monthly subscription
2. Operate Solutions (OS): Rev-share and usage-based

The reason: Generate revs as builders develop content and ALSO generate revs as their game grows and becomes successful.

CS DRIVES OS!

6) Create Solutions: 43% of Revs
- Five plans customers can buy with Create Solutions:

1. Unity Plus
2. Unity Pro
3. Unity Enterprise
4. Unity Personal
5. Unity Student

- Customers typically buy 1-3 yr subscriptions, billed monthly, quarterly or annually.

7) Operate Solutions: 57% of Revs

- Revenues from this segment are lumpy (depending on popularity of games)

- Unity relies on expanding their customer base to smooth revenue volatility

- Aligned incentives: $U generates more revenue as their customer's game gains popularity

8) Let's Talk About TAM, Shall We?

- $U sees their TAM around $29B across both gaming and other industries.

- They're looking beyond gaming and their current markets.

- Future TAM could be (according to mgmt) "multiple times larger than the opportunity today."

9) Rapid Revenue Growth, Shrinking Operating Losses

- $U grew revenue 42% YoY ($380M to $541M)

- They're currently losing money ($163M last year and $131M in 2018)

- Net cash used in operating activities decreased from $81M in 2018 to $68M in 2019

10) The Power of Real-Time 3D

$U is banking on the power of Real-Time 3D to drive creative innovation, more engaged users and better games.

They break down the power of 3D:

1. Interactive: Connect with content & other gamers
2. Real-Time: 120 images per sec
3. 3D: more real

11) Technology Driving Real-Time 3D Adoption

Rapidly evolving tech allows $U to create better, more realistic and interactive games than ever before.

This new tech relies on these four pillars:

1. Computing power
2. Platforms & Devices
3. Distribution
4. Connectivity

12) Unity Growth Strategies

$U has identified five ways they can grow in the future:

1. Invest in product innovation
2. Grow existing gaming customers
3. Grow new gaming customers
4. Grow beyond gaming
5. Grow across global markets

See more below:

13) Diving Into Financial Data (What Stood Out)

- In 2019, $U generated $541M in revenue and $423M in Gross Profit (>78% GM!!)

- Shares Outstanding: 114M

- Customers > $100K revenue: 600 in 2019 vs. 484 in 2018

- Dollar-based Net Expansion Rate: 133% in 2019

14) Diving Into Financials (Balance Sheet)

Assets:

- Cash: $453M

- Working Capital: $339M

- Total Assets: $1.29B

Liabilities:

- Deferred Revs: $107M

- Total Debt: $124M

Equity:

- Shareholders Equity: $647M

15) Interesting Graphs on Customers, Retentions Over Time

Check out these graphs on:

- Customers > $100K over time
- % of Revenue Rep by Customer > $100K over time
- Dollar-based Net Expansion Rate over time
- Customer Cohort Analysis

16) Letter From Unity CEO

I liked how the S-1 included a letter from $U CEO.

Here's a couple interesting quotes from that letter:

17) $U Reviews from Other Game Studios

The consensus: Unity allows game developers to rapidly create, test and curate new games. This in turn fosters a more creative environment, which leads to more potential blockbuster games.

18) Customer Diversification

$U has myriad customers using both its Creative, Operate and Architecture Solutions, including:

Creative:
- Arena of Valor
- Iron Man VR
- Pokemon GO

Operate:
- EA
- Tencent
- Ubisoft Mobile Games

Architect:
- Samsung
- Skanska (Volvo)

19) Executive Management Comp

- CEO: $8.4M total compensation (owns 3.4% of company)
- CFO: $5.23M total compensation

Shareholder Split:

- Sequoia Capital owns 24% of shares
- Silver Lake Partners owns another 18.2%

20) Conclusion

Alright, deep breath everyone. We made it.

Thoughts: Extremely interested once $U hits the public markets. Clear leader with massive switching costs. Provides value for creators, developers and content consumers.

Long industry tailwinds and aligned insiders.

Hey all! Here's an unrolled version of this thread. Makes it a bit easier to read.

Let me know what S-1 you want me to analyze next!

macro-ops.com/unity-software…