Thread by @JoeyKoh_

1/ Unity: A twitter thread of my fundamental investment thesis in $U.

"Democratize game (app) development by making it more accessible to developers"

When 94/100 of top game dev companies by rev are Unity custs & 53% of top 1K iOS and Android games built on $U...

Read on👇

2/ Sources:
In-depth review by @SeifelCapital: seifelcapital.substack.com/p/unity-softwa…
Their S-1: sec.gov/Archives/edgar…
Their Q3 earnings transcript & presentation, and 10-Q

3/ Unity is an engine for game development, with a focus on interactive, real-time 2D/3D content

A 90's kid, I had the pleasure of playing games that transports you to another world (WoW, Skyrim). I can play for hours upon hours; narratives were so dense with endless adventures

4/ For my not-so-youthful readers, it would be similar to a real-life dungeons and dragons, or even life itself (Sims).

Just as $NVDA envisioned every PC having GPUs for high-perf gaming, $U envisioned a world where game development is increasingly democratized & accessible.

5/ That, Unity has done to near perfection. It's engine is platform agnostic, and caters to >20 gaming platforms, including the most popular (PC, consoles) to the newest (AR, VR)

Developers can build once, and deploy anywhere & everywhere, a testament to "democratizing".

6/ Q3'20: Unity released a LEGO microgame, aimed at developers who are new at game design, allowing them to create a interactive 3D game in less than an hour via building blocks.

This is akin to scratch, a langage created to make it easier for people to learn programming.

7/ Once the game is created (via its engine), it's foolish to think that it'll be the next minecraft or free fire.

Just like a hobby developer building a mobile app doesn't make it the next facebook, any game needs an active user base to monetize and earn $.

8/ For certain game developers, focus is placed on creating the perfect games, vs end-user ecosystem.

In keeping w democracy, Unity helps 'settle' many things for game developers, like:

1) user engagement & monetization
2) End-user Engagement
3) Cloud Ops

9/
1) User engagement & monetization

With >50% of mobile, PC, console games built with Unity, $U's in-game ad network is absolutely mammoth, serving 23 billion ads per month. Ranked 4th (!) in mobile gaming ad converts.

See: businessofapps.com/ads/mobile-ad-…

10/ The extensive game reach records over 50 billion in-app events per day across >20 platforms w 2.5 billion active end-users. The analytical value and the sheer richness of data cannot be understated.

11/ Q3'20 (CEO): "our view was that vis-à-vis iOS 14 and the changes in IDFA, we were not anticipating material disruption in Unity's business."

"We view ourselves as a monetization platform, less so an ad platform, we believe we've got a fundamental advantage on the data side"

12/ So imo, games w operate solution:

- 'lease' add space to Unity, who decides the best ads to insert, in-app purchase or other app installs
- ads are managed by in-house DSP (cost/install, cost/impression)
- any revenue gained is shared w game and Unity.
Mid-thread revelation

13/ End-user engagement

Lesser talked about, but offers a suite of bolt-on tools for the game to be fully functional (i.e. in-game chat, voice).

These are essential for any game but I do believe mgmt places more its monetization and cloud ops platform.

14/ Cloud ops
For any indie game studios, server configs + multiplayer matchmaking can be a great hassle.

Fall guys, a wildly viral game, partnered w Unity & its Multiplay to enable great flexibility on servers, support, matchmaking as it went viral.

15/ A game studio doing its own server might have required 24 hours to get it up and running, ruining any potential of a viral game

16/ Cloud ops

Fall Guys was a great use case of relying on Unity's cloud hosting for any multiplayer game.

Q3'20: Cloud Content Delivery was released. It's basically a CDN for games, enabling 'end-to-end solution for storing, managing, deploying content releases'.

17/ If you've come this far, and already feel excited, then I'll have you know that its only half of the story :)

To summarize, Unity offers everything within the game development cycle; but they don't create the game.

Can you think of an IP with that much value?

18/ Note their consistency in future-proofing their business, or 'moat' (?)

CEO (Q3): "we've been spending for two years... to support the M1 hardware that Apple announced and credited us"

19/ CEO: "and supporting both PlayStation 5 and the Xbox 2 Series that are now, the X and S, working with over 60 development studios on the console launches, lots of launch titles built on Unity. None of that yields an instantaneous return for us."

20/ On roblox: "this isn't being ignorant of it. I don't believe we're going to see the Minecraft and the Roblox world come after us so much as to identify a new marketplace that we can build into"

21/ On low gaming take rates:

"It's about 0.4%. they have a mental picture that it must be at least 2%, 3%, 5%, 10%."

"I have been involved in publishing > $40 billion worth of games & the one thing I hated more than anything was a royalty model or rev share to a toolmaker."

22/ On Metaverses: "I'm also a giant believer that's already here. Today, I played a couple of games. I read the news about the political environment. I read a lot of some news that's going on in some of our markets around the world. I communicated on Zoom, Slack, email."

23/ Cont: "I'm already in the middle of the Metaverse. What's going to change in years to come is that Metaverse will be increasingly real-time 3D"

$U's plan: Get every creator on the Unity metaverse.

24/ Cont: "The opportunity is borne to the fact that in a typical team if it has a couple of hundred people, we might have 70 seats. And we have the opportunity to grow with that team up to 200 seats."

All emp of the game dev team, can work on Unity platform (Metaverse).

23/ If you've followed me till this tweet, and you already feel excited, then you're in the right place.

If not, pardon my thread writing skills. After all, it's my gift back to society.

Part 2 up next! on this reply.

26*/

Besides subscription platform, they also have a freemium model for hobbyists/students, building a huge funnel and attacts even more potential creators onto Unity

More Unity creators -> More studios use Unity -> Employ creators with Unity -> Demand for unity language ☝️

27/ For a few years (?) now they have been venturing onto real-world use cases for interactive 3D content (i.e. modelling, AR, VR, graphics)

Lion King (2019) was created with the Unity platform. Mufasa!

28/ Most content on the AR/VR platform started with games, and therefore represents a natural extension
Appears that Unity have been leading the drive for AR/VR.

Zuckerberg once thought of acquiring Unity in a bid to lead the foray into AR/VR. The one that got away...

29/

Q3'20: MARS was released, providing creators professional-grade workflows for AR/VR development, allowing creators to build, prototype, visualize data-oriented apps in real-time without leaving the editor.
Reminds me of this... Very surreal.

30/ In their Q3'20 presentation, they also mentioned that the top 10 auto manufacturers are their customers.

They've already begun enabling workflows for AR/VR use cases.

The AR/VR age is already here, and Unity seems to be on top of it.

31/ CEO on use cases: "I can give you dozens upon dozens upon dozens of use cases that will move into the arena of real-time (RT) 3D. And if I start framing for you what I see on the horizon with some of the hardware, you will believe me even more. "

31/ cont: "So I believe we have a market that will double, double and double again. And I believe we have an opportunity to establish for Unity north of a 75% or 80% (?!?!) market share in the fullness of time."

Referring to 3D games, as well as Interactive RT 3D AR/VR/Apps.

32/ It's already being used in the automotive industry for visualisation of vehicles, or even road testing simulation.

The opportunities are endless, for architects, civil engineering, interior design, landscaping, any form of interactive 3D... which is the world?

33/ For me, my understanding of the metaverse is imperfect, but it would be similar to ecosystems. FB is a & Netflix are 2D metaverses. We're increasingly seeing shifts towards 3D interactive metaverses (AR/VR) - TikTok.

Who's the leader in creating interactive RT 3D content?

34/ A Unity metaverse would be one where creators can go onto Unity, and create *anything* they want. It's mainly games now, but our imagination is really limited by our experiences.

You may even see the use of AR in cars, powered by Unity (?)

35/ All of these bodes well for the future of AR/VR, of which Unity seems like the clear leader (owing to it's leadership in game development).

It's clear the narrative is bullish, but we will never be sure *when* the price will agree w the narrative.

36/ End of day, a very clear and simple long-term hold with many opportunities to average up.

Last but not least, while we believe in the narrative, we must still continuously verify it's relevance in its competing markets

Investing is no free lunch and neither is this thread.

37/ Thank you all for reading till the end.

I've no incentive to tag people in hopes that they will share, but for all the value people provide to me through their tweets, this (thread) was the least I can do.

Have a great weekend.

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