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Master the Meta: Another beat for Unity

Unity generated $235 million in Q1 2021

Master the Meta: Another beat for Unity

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Hot off an IPO back in September 2020, Unity hosted their third ever earnings call earlier this week, largely beating investor expectations and highlighting the company’s rapid expansion efforts.

A few highlights:

  • Q1 Revenue came in at $234.8 million (an increase of 41 per cent year-over-year), 8 per cent over analysts projections
  • The company’s two primary offerings, create solutions and operate solutions, pulled in $70.4 million (an increase of 51 per cent year-over-year) and $146.6 million (an increase of 40 per cent year-over-year) respectively
  • The company is rapidly expanding outside gaming, including new partnerships with Lowes Hardware and big players in the automotive and healthcare industries
  • 837 Unity customers are generating more than $100,000 in revenue using the platform, a 25 per cent increase from March 2020
  • King, makers of Candy Crush, released their 3D mobile game (a spinoff of Crash Bandicoot) built exclusively on Unity

On the back of a solid beat, the company is raising its guidance for the year by $50 million, with an overall forecast set to break $1 billion (29 per cent rise year-over-year) in revenue.

This might feel overly optimistic for a company whose market cap has been cut in half since its peak in December and lost a very solid data pipeline thanks to IDFA, but there are still plenty of reasons to think Unity can become a much larger and important business:

It’s (still) not just games

It is readily obvious that COVID-19 has been a huge boon for gaming and Unity is no exception.

In our earnings breakdown last fall, we noted that the games industry still offers abundant long-term upside for the engine developer (although rightly noted short-term expectations were too high), but that the potentially larger, yet much more difficult opportunity lies outside games.

While non-gaming verticals only represent less than 10 per cent of total revenues today, locking in a Fortune 50 customer like Lowes is an early sign that the company is beginning to figure out other industries in a meaningful way.

An almost IDFA-proof business

Despite early warnings in their Q4 earnings, the company has managed to largely weather the IDFA storm.

According to CEO John Riccitiello the company is seeing tens of millions of user interactions per day and has already recorded north of a billion events since the launch of iOS 14.5 in late April.

The company’s contextual model just doesn’t need IDFA’s data, and as a result, Unity is only expecting to feel a $30 million hit from the change.

Not only does that mean they don't have to worry about feeling the outsize loss of that data like other competitors, but also that they have copious amounts of information that the developers behind their industry-leading 71 per cent of mobile games will continue to want, making the product sticky and valuable.

Future-proofing for VR and AR

As we mentioned in our business breakdown last fall, the prospect of building for a VR/AR-first world of gaming is a huge opportunity for Unity.

While adoption for the platforms continues to grow slowly, companies like Facebook are seeing outsized growth from their investment in the space, and hardware continues to become more ubiquitous amongst game fans.

As the company continues to be a market leader in VR/AR advertising, which is more prone to sharing than normal games content, building an early lead in the space will ensure they remain dominant in the next generation.

Combine that with the fact that the medium is quickly in target non-gaming industries - like construction and medicine - and the long-term prospects of the company begin to look very, very good.

(Written by Max Lowenthal)

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