The US IPO market is red hot these days evident by the 112% jump beyond IPO price in Snowflake shares as described in our research note earlier today. The next IPO in the pipeline is Unity which is cross-platform game development engine. Just like Snowflake, Unity has raised its IPO price from $32-42 to $44-48 and we would not be surprised if the final IPO price is $50 or above when it is settled today. At $50 per share Unity would be valued at $11.9bn and raise $1.25bn in fresh capital excluding the overallotment option to the investment banks. The shares will start trading tomorrow on NYSE under the Saxo ticker code U:xnys.
It started with gaming, but can Unity evolve?
Unity is world’s leading platform for creating and operating interactive real-time 3D content with 1.5 million active creators on the platform. Its business and strong market position has been built in gaming with an estimated 53% market share of the 1,000 most downloaded mobile games in 2019 according to the S-1 filing. That is a dominant market position and ultimately a good setup for superior profitability in the future.
Unity offers two solutions to creators: Create Solutions and Operate Solutions. The first is a subscription-based model whereas the latter is a revenue-share and usage-based model. The Operate Solutions segment is the biggest with 54% of total revenue and in terms of geography Unity has managed to diversify its revenue sources driven by strong growth in Greater China and APAC region.
Most of the revenue is assumed to come from the gaming industry, but the company describes how other industries such as architecture, engineering, construction, manufacturing and automotive are adopting this technology in their processes and planning. This means that the total addressable market is much larger and perceived by Unity to be around $29bn globally. Unity does not break down revenue from gaming and non-gaming industries, so the non-gaming industries are likely to be a small part of total revenue.