Unity Software IPO: the $1bn listing to keep on your radar
10:21, 15 September 2020
The strong rally in technology stocks in 2020 has prompted a flurry of initial public offering listings of the companies operating within the industry. In fact, September is on track for the highest number of IPOs in several years, with the interactive 3D content platform developer Unity Software Inc. (U) also rolling its stock out on Friday.
At around $1bn, Unity’s IPO value could make it the third-largest ever US software offering. But why is the company able to command such a high valuation for its listing?
In this article, we tell you everything you need to know about the business to decide whether to invest in the shares as soon as the U stock IPO happens on the New York Stock Exchange (NYSE).
At the forefront of 3D technology innovation
The company was initially founded as Over the Edge Entertainment in Denmark in 2004. It reorganised in May 2009 as Unity Software Inc. and is now headquartered in San Francisco, California.
Unity is a software as a service (SaaS) provider, meaning it licenses its software on a subscription basis. Unity offers a set of applications for creating, running and monetising interactive, real-time 2D and 3D content across multiple platforms including mobile, PC, games consoles, and virtual reality (VR) devices.
Unity’s value proposition lies in the changing technology landscape that makes interactive 3D content possible. The company notes that for almost a century, photos and video content have largely been created in the same way, by capturing 3D images through a 2D lens and projecting them onto a 2D surface. Advances in digital camera technology, software tools and computing power are now enabling innovation like never before.
The business operates through two divisions: Create Solutions for content creators – developers, artists, designers, engineers and architects – to create interactive, real-time 2D and 3D content; and Operate Solutions, which helps customers grow and engage their end-user base and monetise their content. Create Solutions generates revenue through monthly subscriptions while Operate Solutions uses revenue-sharing and usage-based models.
Unity operates 39 offices across 18 countries and plans to further expand its operations and customer base across major global markets.
According to the SEC filing, the company generated $541.8m in revenue in 2019, up from $380.8m in 2018. Its net loss increased from $131.6m in 2018 to $163.2m in 2019, but fell in the first half of 2020 to $54.1m from $67.1m in the first half of 2019.
Unity’s revenue is well distributed geographically. Of the $541.8m in revenue received last year, 34 per cent came from the Europe, Middle East and Africa (EMEA) region, 28 per cent came from the US and 21 per cent came from China.
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Why are investors anticipating large gains from the stock?
Unity has been expanding rapidly, launching the first of its Operate Solutions in 2014, moving into augmented and virtual reality platforms in 2016, and industries beyond gaming in 2018. It has acquired eight companies since the beginning of 2019.
In its S-1 filing, Unity estimates that on a global basis in 2019, 53 per cent of the top 1,000 mobile games on Apple’s App Store and Google Play, and over 50 per cent of mobile games, PC games, and console games combined were made with its platform. The applications developed using Unity software were downloaded over 3 billion times per month in 2019 on over 1.5 billion unique devices. As of 30 June 2020, Unity had approximately 1.5 million monthly active creators in over 190 countries and territories around the world.
Real-time 3D content is driving growth in the gaming industry, which has expanded from less than $15bn in annual revenue 20 years ago to over $140bn today. Gaming is now the fastest-growing sector of the media industry, with over 2.5 billion gamers worldwide.
Unity estimates it has a total addressable market across gaming and other industries of $29bn and it sees an opportunity to grow its business multiple times larger as industries beyond gaming leverage its platform.
The company said in its S-1 filing: “Fortune and Global 500 companies in industries such as architecture, engineering, construction, automotive, transportation, manufacturing, film, television and retail, are using Unity across many new use cases, including automobile and building design, online and augmented reality product configurators, autonomous driving simulation, and augmented reality workplace safety training.”
“These new forms of content are emerging parts of our business and represent a significant opportunity for growth.”
Unity Software IPO: what to expect and when
The Unity Software IPO date is set for Thursday 17 September, in one of the busiest weeks so far this year for IPO launches, with 12 companies going public.
The Unity Software IPO registration document was filed with the US SEC on 24 August, and in an amendment on 8 September, the company stated that it intends to list 25 million shares of common stock on the NYSE under the ticker symbol U.
The firm estimates that the initial U stock price will be between $34 and $42 per share. That would raise between $850m and $1.05bn, and give the company an IPO valuation of up to $11bn based on its total outstanding shares.
Rather than list with the traditional IPO process, Unity Software shares will be assigned using an auction-like bidding system run by Goldman Sachs (GS), which will give the company more control over the share price, according to the Financial Times.
Unity said that it intends to use a portion of the net proceeds from the IPO to repay $125m of outstanding debt under a credit facility it borrowed to provide liquidity in case of any material impact on the financial markets related to Covid-19 but which it has not used so far.
How can you trade U shares once the stock has listed?
Are you interested in the Unity Software IPO 2020 and looking for the opportunity to invest in the stock as soon as it hits the US stock market?
As soon as U stock goes public on the NYSE, its shares will become available for trading through contracts for difference (CFDs) on Capital.com. With CFDs, you can speculate on the stock’s value without the need to own the asset itself.
The advantage of CFD trading is that you can try to profit from both positive and negative price fluctuations in the stock: you can either hold a long position if you expect the Unity Software stock price to rise, or you can take a short position if you expect the price to fall.
Another advantage of trading shares with CFDs is leverage. Trading with leverage means that you can open significantly larger positions with a smaller amount of initial capital. However, while leverage provides the opportunity for big profits, it can also result in bigger losses.
Create a trading account at Capital.com right now and be the first to trade Unity Software stock.
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