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Here's Why I'm Excited About This Software IPO

By Jose Najarro, Matt Frankel, and Danny Vena – Sep 24, 2021 at 7:51AM

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This company could have massive growth potential over the next few years.

There have been some pretty exciting IPOs in the software industry within the past year or so, but one of our experts is especially excited about Unity Software (U -3.94%). In this Fool Live video clip, recorded on Sept. 15, contributor Jose Najarro discusses why he's watching Unity very closely with colleague Danny Vena. 

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Jose Najarro: The next IPO stock I want to talk about, I think this has been the most exciting IPO for me. This is going to be Unity. I mentioned earlier on in the show, I write a lot about the gaming market. I also come from the engineering background and I'm going to explain how that ties in with Unity.

For those not familiar with Unity, if you are designing some form of game, Unity creates what it's called a game engine platform so you do the development of the game in Unity. Right now, most of its revenue is coming from game developing, but it is hitting other markets. I'll mention a bit about that. But the first way this company makes money is through subscription basis. If you're using an enterprise, if you're an individual user who makes games with X amount of revenue, U pays proceeds.

A lot of big game studios use Unity. This is its second-highest revenue generator. The first revenue generator is what they call their commercial solutions, I believe it's what is called, where it's more post-game creation. After you created the game if you want to advertise the game, if you want to put monetization to the game, if you want to get analytics from your players, they have services that allow the game studio to learn more about you to extend the growth of their game. This is the biggest driver for Unity at the moment. Then they have something that's called sponsorships and others. I'm not too much of a fan of that. The two biggest to my favorite two segments are post-game creations and pre-game creations.

Unity right now, I do want to say one of their biggest growth is not the gaming itself, it's the market that they are expanding. They're expanding into outside games and that's from real-time 3D solutions. Like I mentioned, I come from an engineering background, I've worked in some firms that are not game studios that are developing the next technology. In my previous jobs, we have used Unity to make stuff like robotics automation to do stuff like doing AR and VR for training facilities and stuff like that.

I personally have seen the future growth at this company. This is still very early stages, but I believe this is one of my favorite methods. My favorite growth stories for Unity is them expanding into the outside gaming world. That's just my quick pitch on Unity. This is one of my top three holdings at the moment. Like I said, it's one that I'm very familiar with and I'm very excited about. Thank you.

Danny Vena: Thanks, Jose. These game engines, there's a little bit of competition. There's a couple of companies that are really highly thought of game engines, but Unity is definitely near the top of the pack, isn't it?

Najarro: Yes, the other one familiar in the gaming industry is by Epic Games, Unreal Engine. They hit certain different markets. I would say Unity right now is mainly in that mobile game. As a gaming investor, I believe the mobile users, especially in countries like Latin America, Southeast Asia, that's where the mobile gaming growth is still increasing dramatically, and that's where Unity takes a good portion. Some of these competitors are mainly for AAA games, but Unity is starting to get a little market share from there. Definitely some competition in the market.

Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Unity Software Inc. The Motley Fool has a disclosure policy.

Stocks Mentioned

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Unity Software
$33.93 (-3.94%) $-1.39

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