Unity Software's (U) - Get Report initial public offering Friday lands the company at a more than $13 billion valuation and CEO John Riccitiello explained to TheStreet the several prongs of growth opportunity still ahead for the company.
First, the demand for tech IPO's has continued to be off the charts. Software company Snowflake recently hit the market at a valuation higher than $60 billion. According to data fro Ally invest, the IPO market is expected to be about $80 billion in 2020 (could be higher as of Snowflake's success).
The biggest year for IPO's since 1990 sported $60 billion of investors money. Unity shares were initially priced at a mid range of $38 before rising to $52 just before the listing. The stock traded up 30% to $68 a share Friday.
Unity makes software for gaming developers, which sell games to console users. The new-found capability and adoption of 3D gaming content is driving growth. The company has two revenue segments.
One is a subscription segment that sells software for game development and the other is a revenue sharing segment that creates software for game marketing and user acquisition and it comprises a bit more than 60% of Unity's revenue. The company grew revenue recently at over 40% year-over-year to $540 million, with that rate decelerating to just above 30% in 2020. Net losses have significantly narrowed relative to revenue of late. The valuation reflects a roughly 25 times price-to-sales ratio, which is normal for a growth company, but a lot to live up to.
And the company has already grown into a sizable one.
Management says about 50% of all games currently use Unity's software and that growth will come from customer acquisition. Here's prong number one way the company will make that happen, according to Riccitiello:
"One thing that folks can't miss is that because are tool is becoming more and more and more capable, we find that new users, artists, designers, network engineers, they're coming onto unity," suggesting the company is gaining market share.
Prong number two: "we are also getting a lot of growth outside of gaming, which is brand new, whether it's architecture, engineering or construction or manufacturing."
Prong number three: One reason the market for 3D content software is still growing quickly, according to Riccitiello, is because large game developers are increasingly appreciating the value in using third party software makers like Unity.
Unity does have hundreds of millions of dollars in debt, but Riccitiello said the recent $1.3 billion capital raise is key.
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