Returns as of 03/21/2022
Returns as of 03/21/2022
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Unity‘s ( U 4.74% ) two main business lines have powered the company to impressive revenue over the past quarter and year. In this clip from «3 Minute Stocks Updates» on Motley Fool Live, recorded on March 2, Fool.com contributors Toby Bordelon and Brian Feroldi examine some new acquisitions and partnerships that should lead to significant growth.
Toby Bordelon: Let’s talk about Unity. Unity, a company whose name you may know, this is a company that operates in two business segments, they have their create solutions which I think is the thing you think of most with Unity. With that 2D/3D development platform that is used mainly for the gaming industry and they’re expanding to other industries. But that’s where most people would think of them in that context.
They also have the operate solutions segment, which is actually bigger in revenue, and it does things like ad placement, in-game content, that sort of thing. More of an advertising-type business there. For the fourth quarter, they did pretty well. They had revenue of 43%, which is quite nice. Create solutions up 49%, operating solutions up 45%. You look at the full-year though. The full-year you had that operating solutions up 51%, and create solutions up 41%. Operate solutions for this year is starting to lead this business is the biggest segment and it’s still the fastest-growing segment, which is really nice to see.
They have now over 1,000 customers. The exact number they gave us, 1,052 customers that generate over $1,000 in trailing 12-month revenue, versus 793 the year before. It’s really good to see them getting that large customer base up. The first part of that customer base. A lot more customers are saying this is what I want to do, I’m going to spend more money on this platform.
Dollar base and expense rate of 140% versus 138% last year. Getting that up a little bit nice to see. They did a lot of acquisitions last year, a couple of things. Let me just go through a couple of names. You may not be familiar with them but Parsec, that’s a remote access platform. SyncSketch is a cloud-based collaboration tool that artists and creators can use to collaborate remotely. Weta Digital, that’s the visual effects company founded by Peter Jackson. That was their high-profile acquisition they announced recently. The other one, Ziva Dynamics, interactive data visualization.
The point is that they are expanding by acquisition. They are using these acquisitions to continue to enhance their product suite that they have and to add more tools, more options, expand into other industries. They create solutions, business continues to expand beyond gaming.
They have a recent partnership with Hyundai ( HYMTF 2.86% ), which they have this connected physical factory with a digital version through enhanced plant management and increased productivity and least you think that’s the only one, let me just show you this from their website. You will see here look at this. In the auto industry alone, Autoliv ( ALV 0.91% ), BMW ( BMWYY -1.02% ), Honda ( HMC 0.28% ), Toyota ( TM -0.02% ), Volkswagen ( VWAGY 1.19% ).
You’ve got other stuff out there as well. But you see them making inroads in this industrial segment as they continue to grow this business, that’s the key for them expanding beyond gaming in a big way, and that’s what they are doing, so really nice to see, I think a good quarter and continued growth ahead.
Brian Feroldi: Toby, the top-line growth here looks great. The dollar-based and expansion rate looks great. The growth in big accounts looks great. Bottom line does not look great. Is that something that should concern investors?
Bordelon: That’s a really good point, Brian. They did see an operating loss in the fourth quarter of almost $145 million versus $80 million last year, and even more concerning perhaps is that that operating loss was now 44% of revenue versus 37% of revenue last year. It’s getting bigger in absolute terms and getting bigger as a percentage of revenue.
But here’s the thing. I think you need to approach Unity as a company that’s selling growth votes. I’m not too concerned about this yet. The company’s been around for a while, but they’re making major efforts to extend the business into new markets while they are bulking up the core gaming market with acquisitions. They’re also increasing and innovating that core gaming market trying to take advantage of these new technologies like augmented reality, artificial intelligence, the metaverse.
This isn’t cheap. I think it’s going to pay off, but I think we need to be patient. But you do want to keep an eye on those expenses and make sure they remain reasonable in the face of this growth, and if these major losses are still racking up in 2-3 years, maybe I want to reevaluate, but for now, I’m willing to give them a little bit of room to run and see if they can continue to grow like they have been.
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