Bear and bull cases for Unity’s IPO

In the first part of my outline on the company, I explained the scope of Unity’s multidimensional business, its R&D efforts and competitive positioning, and its grand vision for interactive 3D content across every industry.

In the conclusion, I’ll dig into Unity’s financials and how it is marketing its public listing before turning to discuss the bear and bull cases for its future.

Key data points from Unity’s S-1 filing

• Revenue grew 42% year-over-year from $381 million in 2018 to $542 million in 2019 with operating losses of $130 million and $150 million respectively. It hit $351 million in revenue by June 30 this year. That pace suggests a 2020 total around $700-$750 million (+30% year-over-year).
• The company has gross margins of about 79%, although costs are overwhelmingly centered in R&D and sales and marketing, which account for 47% and 32% of revenue, respectively.
• The company has cumulatively lost $569 million up to this point, including a $163 million net loss in 2019.

The geographical source of Unity’s revenue in 2019 was:

• 34% EMEA
• 28% U.S.
• 21% APAC — excluding China
• 12% China
• 5% Americas — excluding U.S.

Unlike many other Western tech companies, Unity operates freely in China.

In Part 1, I explained each of Unity’s seven main revenue streams. During the first half of 2020, revenue by segment broke down to:

• $216.9 million (62%) from Operate Solutions (products for managing and monetizing content), the “substantial majority” of which is from the ads business.
• $101.8 million (29%) from Create Solutions (products and consulting for content creation), two-thirds of which is from Unity Pro subscriptions.
• $32.7 million (9%) from Strategic Partnerships and Other (Unity Asset Store and Verified Solutions Partners).

The S-1 discloses that less than 10% of overall revenue is from “newer products and services, such as Vivox and deltaDNA” (referencing key 2019 acquisitions for its Operate segment).

Some takeaways from this data:

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