stocks Unit programs (NYSE: U) It has been out of racing since the company’s IPO in September. As of this writing, the stock is up nearly 60% from its start just two months ago. But its acceleration in growth during the summer months explains why this video game and digital content creation platform has soared.
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Q3 by the numbers
The unit was on track during the first half of 2020 until its IPO, with revenues growing by 39% compared to the same period in 2019. The company was operating in negative free cash flow territory (core profitability is measured by revenue minus cash and capital operating expenses), but That was by design, with expansion prioritized over earnings. Besides, with the gross profit margin for services rendered close to 80%, there is no reason to doubt that this will be a very profitable concern in the future.
However, I still haven’t bought the stock – yet. I usually wait at least a quarter or two before starting to nibble on new IPO stocks. But loneliness has gone a long way toward convincing me to start sooner rather than later. Revenue growth accelerated to 53% year-over-year during the three months ending September 30, 2020. Along with adding a lot of new customers, one of the keys to the company’s recent success was a dollar-based net expansion rate of 144%, up from 132% a year ago. Inclusion of the platform’s existing users increased spend by 44%.
Finally, the Q3 was a huge success for Unity – it grew at a rapid rate and eventually began to show signs of turning.
|
Measurement |
Q3 2020 |
Q3 2019 |
They change |
|---|---|---|---|
|
Revenues |
$ 200.8 million |
$ 130.9 million |
53% |
|
gross profit margin |
76.3% |
79.8% |
(3.5 AM) |
|
Adjusted net income (loss) |
($ 12.96 million) |
($ 35.21 million) |
Unavailable |
|
Free cash flow (including acquisitions) |
($ 744,000) |
($ 92.53 million) |
Unavailable |
Pp = percentage point. Data source: Unity Software.
A platform that goes beyond video games
Unity has become the # 1 destination for video game creators of all sizes. The cloud-based software platform provides all the necessary tools, from game design to monetization – including a Content Delivery Network (or CDN, similar to the likes of Quickly And the CloudflareIt just launched at the end of Q3 to help its users seamlessly manage their game updates in real time.
The platform has a lot of options outside of video games, too. We live in a new digital age, and many other professions are in constant need of content creation, management and collaboration tools. Besides games, Unity also finds an audience among architects, engineers, automobile designers, and TV and movie producers, to name a few. If 3D visualization is part of the job, Unity can help.
Unity said it expects revenue to grow “only” of 27% to 29% in the fourth quarter of 2020 – a view that I think is likely to be conservative – but nonetheless, this should be a high-growth business for years to come given its size. Potential end markets. $ 1.76 billion in cash and cash equivalents and zero debt on balance after a successful IPO definitely helps, too. Stocks are currently trading for 39 times the expected sales for the full 2020 year, but for those looking to years to come, the price is less of a concern. Just remember to keep your initial purchase so small (I usually start with less than 1% of my total portfolio value) so that you have scope to buy more (maybe on a monthly or quarterly basis) if you decide to buy now.
