Unity Software (U -1.90%) has established itself as a leader in the gaming industry. Its platform allows creators to build and deploy 3D content across a range of platforms, including virtual reality devices. In the years ahead, as that technology continues to evolve, Unity's development engine will likely become a key resource in building the metaverse.

That being said, there are several other reasons this stock is worth owning. In this Backstage Pass video, which was recorded on Nov. 29, Motley Fool contributor Trevor Jennewine shares his thoughts on Unity, highlighting its strong competitive position and massive market opportunity.

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Trevor Jennewine: I think most people are probably familiar with Unity, but if you're not, it's essentially a content development engine. Its platform is used by creative professionals like game developers, architects, designers, filmmakers, to build real-time interactive 2D and 3D content. That content works across a range of devices, mobile phones, tablets, game consoles, virtual reality systems.

That's really the value proposition with Unity. Back before Unity was an option, traditionally, in order to build those high-quality graphic applications, engineers first had to build the development tools, and then the application itself had to be recoded for each individual platform. If you wanted your game to work across iOS, Android, PlayStation, et cetera, that typically involved more work for each additional platform. But with Unity, you build it once, and it can be deployed across 20 different platforms.

Then I mentioned the content is also interactive and real-time. That just means it responds and instantly adapts to user behavior. You can think about it like a TV program. You can't change what's happening on the TV, but in a video game you can alter the virtual world. But on the creator side, that interactive, real-time technology allows those creators to visualize and edit the content simultaneously. So it accelerates the development process.

Unity breaks its business into two segments. There are creative solutions and operate solutions. Create solutions is essentially the software development engine; this is the product, it's a suite of tools for graphics, animation, audio. And all those things help that developers create and edit those immersive 2D and 3D content experiences. In that segment, Unity makes money based on subscription fees.

On the other side of the business, there's operate solutions. This is a suite of tools that allows clients to run and monetize their games. This includes things like Unity Ads, which is an in-app advertising platform; Unity IAP, which is an in-app purchase platform. Then there's also things like deltaDNA, which is their tools for analytics and customer relationship management. The goal is to help developers understand how users are interacting with their game and then boost user engagement. Unity really has a full, end-to-end suite for these content developers, and the company's scale gives it significant edge.

You can see on the slide there that Unity has really established itself as a leader in the gaming industry: 71% of the top 1,000 mobile games were made with Unity, and 94 of the top 100 game development studios are Unity customers. That scale allows Unity to capture 50 billion in-app data points each day. Then its machine learning models make it possible to target ads more effectively, they surface better insights as far as boosting engagement, they help the company optimize game performance -- so that the competitive edge reinforces itself.

Just to paint a picture of the company's competition, on the creative solutions side, Unity competes with the Unreal Engine from Epic Games. There's also other 3D design software vendors like Autodesk, Adobe. Then on the operate solutions side, they are competing with other cloud companies like Microsoft, Amazon, [Alphabet's] Google, Tencent, and [Meta Platform's] Facebook. But as I mentioned, they have a strong position in the gaming industry, but their platform has applications outside of gaming.

I wanted to look at their market opportunity real quick. Within the video game industry, management puts it at $12 billion. One interesting thing they just released is Unity Gaming Services. This is a new platform that integrates all of their old operate solutions tools. But it also adds new tools that help simplify cross-platform, multiplayer games. That's a real trendy area in the video game industry right now, so they still have plenty of room to grow within the gaming industry. But the opportunity outside of gaming is even bigger: $17 billion there. For instance, architects can use Unity to accelerate the design of buildings. It allows them to collaborate with designers and construction teams. Automakers can use it to model new vehicles more quickly. Filmmakers can use Unity to create scenes and edit them more quickly.

Then one interesting product the company just announced: They're getting into live entertainment and sports. They released something called Unity Metacast, which is a real-time 3D sports platform. What it does is it uses volumetric technology to capture and create interactive content from sporting events. They've already partnered with the UFC [Ultimate Fighting Championship]. Imagine you're watching the fight in your own home. The way they describe this as, you'd be able to watch that event from any angle and any distance. You'd be able to get a very unique perspective, and you could theoretically see that technology being applied to football games, baseball games, basketball games. It's an interesting thing that they're doing in live entertainment and sports.

They also recently acquired Weta Digital. That is the visual effects company behind TV shows and movies like Avatar, Game of Thrones, The Lord of the Rings. They're bringing those visual effects tools in-house. Like I mentioned, Unity collectively puts its market opportunity at $29 billion. Management thinks that number could be multiple times higher.

One of the reasons I really like this company is they have some growth opportunities in interesting areas. Artificial intelligence: Unity just released Simulation Pro. Its platform is able to serve as a simulation engine, a physically accurate simulation engine that can generate synthetic data. That can then be used to train AI models for autonomous vehicles or autonomous robots. So they have a foot in the AI industry.

Unity's platform is the leading solution for building content for augmented and virtual reality applications, and virtual reality will eventually blend into the metaverse. I think Unity will be a key player in helping shape the creation of the metaverse. A lot to like about this company, and I put some financial metrics up there just to close things out.

Over the past year, the company generated $1 billion in revenue. That was up 43%. They are free cash flow negative over the past 12 months, but they generated positive free cash flow in the most recent quarter. More importantly, they have $1.3 billion in cash in short-term investments on the balance sheet. There is no long-term debt. It has such a strong position in the gaming industry that I think -- they have money to burn while they scale their business. Then the last data point I put up there is their expansion rate was 142% in the last quarter. That is a very strong expansion rate. That indicates that over the past year, the average customer spent 42% more on Unity's platform. So, they're getting their customers to spend more over time, which is always good to see.