Unity Software (U -1.43%) is a technology company that makes it easier for developers to create digital things, such as video games. But knowing what a company does and how it makes money are two very different things, since there's a variety of business models companies can choose to employ. 

In this video from Motley Fool Backstage Pass, recorded on Oct. 11, Fool contributor Jose Najarro breaks down how Unity makes money. As we'll hear, most of the company's revenue doesn't come from the development of video games, but rather from services provided after the game has been created.

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Jose Najarro: Today I'm going to take a look at Unity and let me share my screen real quick. Unity Software, very big in the gaming market. This is a recent IPO. If we take a quick look, I think it was September of 2020. Right now the stock price is sitting at $135 and I am obviously going to talk about some of the goods, some of the bad, and just my overall thoughts in this market.

First, let me just say Unity is one of my top five positions in my portfolio. I'm super excited about this company currently sitting at $135 with a market cap of $38.29 billion.

You might be like Jose, what does Unity do? Unity is mainly known for, if you are some form of game developer, you use Unity to create that game. That's the main purpose of Unity. They also have some post-creation solutions that I'm going to talk about in a bit. But one of the popular games was Fall Guys, this was super popular during the whole COVID situation. I think you guys might've seen videos. I think it was either this past summer, the summer before everybody was talking about Fall Guys, all big Twitch streamers were actually playing this game, and there's a lot of other popular games right now. Their CEO actually came out in the interview on, I forget what network. This was about a month ago. He mentioned that about 70% of mobile games use Unity's technology for creation, and about 30% of console games use Unity technology for their game creation, so they are a big player.

Another big game is League of Legends. League of Legends is the most played esports in the world. It has an average of 80 million monthly players. They are the second most profitable game, and they were made with Unity and some of the spin-offs have been made through Unity.

Now let me take a quick look at this company's products. First is the creation of the game. If you are trying to create a game, you're going to subscribe to their Unity Pro, your Unity plus, if you're maybe a big gaming studio, you might go with the Unity enterprise and you're paying here for like either a yearly, a monthly subscription for seats, per seats. If you have 10 game developers, you're going to pay for 10 seats, and this is the first way Unity makes money.

The second way the company makes money is what is called, so that is the creative solution, the second is the operate solution. The operate solution, this is post-game creation. Post-game creation is once you've created the game, maybe you want to advertise that game, maybe we want to advertise within that game, not exactly advertise the game, but use your game for, maybe you want to put advertising spots in there. You want to get some companies advertise within your game. You can use Unity. They work with stuff like that. If you want to create more like a multiplayer server, it could be difficult creating multiplayer servers, communication among teams, Unity can deal with that post creation. Unity is mainly for not only the creation of the game, but what happens after the game is created. The great thing is, even if you don't create your game in Unity, you can have created in another game engine, and after your game is created, you can come to Unity for that post-game creation, it's not like you have to start off at the first stop for Unity to grab all these customers. Customers can come at the first half of the creation of the game, but they can also start come in, "Hey, I created my game through some other engine, but I believe your solutions post-game creations are stronger."

This company reported their 2nd quarter earnings on August 10th of 2021. Let me zoom in so you guys can see a little bit better. Revenue was $273 million. This was up 48% compared to same time last year. So this is a SaaS company seeing strong growth. Like I mentioned, they have three major revenues. Create solutions, which is the creation of the game. Operate solutions, which is the post-game creation. And strategic partnerships and others. This is a small portion, we can see within that $273 million, most of it, $182 million comes from operate solutions. So most of this money comes from the post-creation of the games, and that was actually up 63% compared to same time last year.

The second portion of this company's revenue is $72.4 million, which is probably about, I want to say one-fourth maybe comes from creative solution, and this is the creation of the game.

Unfortunately, the company is not profitable, right now they have non-GAAP loss operations of $3.2 million losses, which is about 1% of the revenue. They are almost there, they're almost on non-GAAP operations profitable, but they're not there yet. If we take a look at basic and diluted non-GAAP net loss is about a loss of $0.02. Again, they are almost right there, they're really close to becoming profitable on a non-GAAP basis. We can see they have about 888 customers, each generate more than $100,000 in revenue, trailing in the 12 months, and that's a nice growth.

The most important thing I think that is super impressive is, their dollar base net expansion rate is 142%. Once you have a customer there, those customers spend more and more money within Unity.