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Unity Software: A Long-Term Winner

Jan. 04, 2021 7:25 AM ETUnity Software Inc. (U)18 Comments


  • Unity Software provides tools to video game developers.
  • The business is healthy, revenue is growing rapidly, and it has a large total addressable market (i.e. lots of room for long-term growth).
  • In this report, we analyze Unity’s business model, its market opportunity, competitive position, valuation, risks, and our opinion on investing, including an attractive income-generating options trade for you to consider.
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Unity Software provides tools to video game developers. The company recently completed its initial public offering in September. The business is healthy, revenue is growing rapidly, and it has a large total addressable market. In this report, we analyze Unity’s business model, its market opportunity, competitive position, valuation, risks, and finally conclude with our opinion on investing, as well as an attractive income-generating options trade.


Unity is a software development company that provides technology solutions to video game publishers. Co-founded in 2004 as Over the Edge Entertainment in Copenhagen by David Helgason (ex-CEO), Nicholas Francis (ex-CCO) and Joachim Ante (CTO), Unity raised $5.5 million through its Series A funding in 2009 from investors including Sequoia Capital and finally got listed in 2020 at a market valuation of $13.6 billion. The company was launched with the aim of democratizing the gaming development process. It developed a game engine available at affordable prices that could be used to facilitate seamless creation of video games. The company released its first game development engine in 2004, and since then, Unity has evolved significantly to become the most popular third-party game engine and has been used for developing more than 50% of the top 1,000 mobile, PC and console games available in the market.

image source: Unity.com

Unity provides a set of tools that enables developers or publishers to quickly create 2D and 3D content (primarily video games) and efficiently deploy it across platforms including App Store, Play Store, Consoles or PCs. After disrupting the game development industry through its market leading technology, the company is now taking initiatives to develop the platform for generating content for augmented and virtual reality. Unity conducts its business through 3 primary operating segments:

Create Solutions: These include tools that developers, artists, designers, engineers, or architects use to create 2D or 3D

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This article was written by

Blue Harbinger profile picture

Former multi-billion dollar fund manager, turned small business owner. I left to found Blue Harbinger Research in 2015 and founded/registered a private investment management company in 2021. I am a University of Chicago Booth MBA with 20+ years of industry experience, previously working as a pension fund manager, a mutual fund manager and a securities analyst for an aggressive growth hedge fund.

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Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in U over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (18)

MikeFromNZ profile picture
Interesting trade, thanks!
great write up thanks for sharing.
Still a great company, still a terrible price. I love games as a player and as an investor. The sector will clearly eat the world. But I will wait for the current market mania to abate before reopening a position in Unity. Those who buy at these lofty valuations with no regard to the price paid should at least set stop losses.
@jemicarus what price would you say is good to buy at?
U is a good buy under 145 & an xlnt buy under 140 & a steal under 135. The article actually makes Unity a buy for LT investing. Another gaming stock I like that is a bit more speculative is SKLZ. Gaming & gambling stocks look good to me. SPAC in that sector is DMYD
Owen213 profile picture
@drbob512 I read this article yesterday and debated the trade suggested but I ended up buying calls for $sklz instead. Valuation was much more attractive. I noticed that ARK investments bought a ton of Sklz last night while at the same time selling U. So hopefully I made the right move.
Blue Harbinger profile picture
Thanks for commenting. And those SPACs are really something. Best, BH
@Owen213 Before we get too excited about ARKW selling U, realize that ARKK increased shares of U, and now holds over 1.5 million shares:


I would not interpret this as Cathie losing faith in the company by any means. Probably she just wanted to diversify / rebalance a bit.
Is there a share lockup period expiring for employees and early investors coming up soon?
@Willy Beachum likely not until their earnings release (curr. estimate is Feb 11th: www.nasdaq.com/... or of course 180 days after IPO (mid March). Not aware of any officially confirmed dates.
thanks, buffet.
PDXGuy profile picture
Opened a small position on IPO day (regret for adding very low) and since then periodically adding regardless of price BECAUSE I ANTICIPATE TREMENDOUS GROWTH in Video gaming and Unity being leader in that realm, I bought them and continue to add in coming years.
This is a very good summary, thank you!
Blue Harbinger profile picture
hey thanks for reading @Qichar There are some additional good summaries (in my opinion) here: www.blueharbinger.com/...
Owen213 profile picture
Price has dropped quite a bit, do you still recommend the same trade
Blue Harbinger profile picture
Hi @Owen213 Always adjust the trades based on current market conditions. That means moving the strikes up or down to your preference as well as considering different expiration dates. Thank you.
Fleipeg profile picture
Long @U and @SKLZ
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