Unity Software share price: Where next following blockbuster IPO?

Unity Software share price run’s ahead of IPO issue price

IPOs are the name of the game right now.

Over the last few weeks we’ve seen a string of high-profile listings, including software deployments company JFrog, cloud data storage company Snowflake and now Unity Software.

Unity Software – listed under the ticker ‘U’ – is chiefly a video game engine company. In saying that, Unity’s proprietary software has further reaching use cases than just gaming, including: architecture, engineering & construction and media & entertainment, among others.

Regardless of how you use Unity’s software – it has become undeniably popular and dominant, with more than 50% of all new mobile games created using the company’s powerful, real-time engine.

Unity also followed a trend kickstarted by Snowflake and JFrog last week – raising their IPO share price above the previously ear-marked range.

Indeed, though Unity was initially targeting an IPO share price of between $34.00 and $42.00 per share – the company ended up selling 25 million shares of common stock at an IPO price of $52.00 per share – as part of last Thursday’s IPO.

Goldman Sachs and Credit Suisse acted as the lead managers of the IPO.

Discover how to Buy, Sell and Short Snowflake here.

Investors responded bullishly when Unity became tradable last Friday – with the stock opening an impressive 44% above its IPO issue price, at $75.00 per share. Though the stock drifted lower during that session, closing at $68.35 per share, it has since continued to trend upwards, closing out yesterday’s session at $88.67 per share.

The outlook for Unity

Across the gaming industry, Unity estimates the market opportunity to currently sit at $12 billion, with the potential for it to grow to over $16 billion by 2025. In industries beyond gaming, the company estimates the current market opportunity to be $17 billion. Unity currently has a market capitalisation of $21.56 billion, according to Google Finance.

How will the company capitalise on these market opportunities? As set out in the IPO prospectus, the company’s growth strategy will focus on: investing in production innovation, growing its existing customer base, growing new customers, and expanding across other industries and use cases. Growing its global presence is also a key priority area for the company.

Looking at Unity’s focus on increasing engagement with its current user-base – an important driver of revenue growth – it was noted that:

‘We have opportunities to broaden our relationships with existing customers, by expanding our Create Solutions subscriptions, growing Operate Solutions usage and increasing the number of Unity solutions our customers use.’

Unity has already demonstrated a strong history of growing the scale of its user revenues, with the company’s dollar-based net expansion rate rising impressively in recent fiscal periods. Looking at this growth and on a trailing 12-month basis, ending 31 December, 2018 Unity's net expansion rate stood at 124%; for the period ending 31 December, 2019 it stood at 133%; and for the six months ending 30 June, 2020, it stood at 142%.

With implications for overall revenues, investors will likely be keen to see Unity report stable or higher net expansion rates as part of the company’s upcoming earnings releases.

Overall, for the six months ending 30 June, Unity saw its revenue grow approximately 39% – to $351 million.

There are currently no analysts covering Unity Software.

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