Unity is not playing games with a $25 billion market opportunity
Unit software (NYSE:U) is used to playing games.
It’s not just an expression, but a reality, as the company specializes in “game engine” software that developers use to create their own video games. And if the Unit (you) needed to prove its pedigree even further, its chief executive is John Riccitiello, who was co-founder of media and entertainment investment firm Elevation Partners, and who also spent several years as CEO of the giant from the Electronic Arts video game (EA).
But, while gaming may be what Unity (U) is best known for, it’s the non-gaming uses market that presents the biggest opportunity for the company, according to Morgan analyst Matthew Cost. Stanley.
What’s the size ? Cost estimates the total addressable market [TAM] for non-gaming sales for Unity (U) could be worth $25 billion within five years as the company sees the use of its Create Solutions technology expand into a host of industries beyond its customer base main games.
Cost estimated that non-gaming sales were responsible for 25% of Unity(U)’s $1.1 billion in revenue in 2021, with non-gaming sales up 70% last year from 2020. In comparison, Create Solutions sales in 2021 increased by 41%. % over the previous year, at $326.6 million. Cost said the increase in non-gaming business has occurred “as new types of customers begin to take advantage of Unity(U)’s interactive 3D content creation toolset.”
Cost said Unity’s (U) game engine is gaining more “traction” at higher than expected rates due to increased usage in industries such as digital twins and simulations, manufacturing, architecture and education. Cost noted Volkswagen’s (OTCPK:VWAGY) design process for human-machine interfaces, eBay’s (EBAY) 3D viewer for sneaker sales and development by Paris-based internet marketing company Vectuel d ‘a digital twin of Paris to be used in planning the city’s metro expansion and the 2024 Summer Olympics as high-level examples of the Unity (U)Create platform being used beyond the market for games.
“The fact that these Create projects are so varied is a testament to the flexibility [and] Unity accessibility [gaming] engine,” Cost said, adding that such situations “may suggest that industries outside of gaming are still in the early stages of applying the engine to new use cases.”
Cost said the $25 billion market opportunity for Unity (U) may actually end up being conservative as companies with similar software products such as Autodesk (ADSK) and Adobe (ADBE) see their TAMs handsets reach up to 5 times more than those of Unity. (U). Although these companies are larger than Unity (U), Cost said that “there are material areas” where their businesses overlap in the digital content creation market.
In terms of how Wall Street views Unity (U), the company’s shares currently trade at around $101 apiece, are down about 4% for the year and more than half off from their 52-week high of $210, which they reached on November 18, 2021.
Still, Cost has an overweight rating and a price target of $185 per share on the company’s stock. Cost’s view echoes that of Daiwa Capital Markets analyst Jonathan Kees, who earlier this week began coverage of Unity (U) with a buy rating and price target of 110. $ per share due to its technology providing “entrance into the metaverse”.