Software company Unity (U 2.92%) stock is down by more than 50% from its highs, but its business is heading in the right direction. In this Motley Fool Live video clip, recorded on Jan. 24, Fool.com contributor Jon Quast explains to colleague Marc Rapport why he thinks Unity is a great stock to consider right now.
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Jon Quast: Unity is a really interesting company. They are a software company that basically allows developers to create 3D content. This is used a lot in the gaming industry, but it could be used in other applications as well. One of the things that I like about Unity is that it is the market-share leader in its space. It also looks like it's going to keep being the market-share leader because it offers a free tier for businesses that make less than 100,000 in revenue and also for students. It seems like you are a new person coming in, you're most likely to go with the best software that's out there, Unity because it's free on top.
If you look at the stock, it is down substantially. That's why it's on the show, over 50% down. I ranked this one actually in the middle of the pack because it doesn't have earnings. When you look at the price-to-sales ratio, it is still quite a pricey stock. Relatively, it's down, but 28 times sales, that is historically a very pricey stock. But one of the reasons that I like Unity a lot going forward, this is from the third-quarter earnings call.
One of the things that I want to bring investors' attention to is this right here. This is what they're talking about. They're saying that only 2% of the world's content is currently made in 3D. But it's possible that that could go to 50% in the next 10 years. Now, Unity is the market-share leader of that, and so if that kind of transformation occurs, in the digital creation market going to the 3D, it is likely that Unity is going to capture the majority of that upside over the next 10 years.
Directionally, this is very, very bullish for the company in the industry it is in. Is it going to be 25x in 10 years? That's not what I'm saying, but what I am saying is all the signs point toward a lot of growth in the industry, and the company is the market-share leader at a price that is currently down, so that's one of the reasons I like Unity.
Marc Rapport: Can I ask you something about that, Jon?
Rapport: Do you see them as having strength as a metaverse play because, they are still unprofitable, and the big players don't really have to use their tools so they're dependent on the smaller. Go ahead. I'm sorry.
Quast: I think that is partly the bulk, where they're getting that 2% to 50% over the next 10 years. I think a lot of assumptions are baked into the metaverse with that. To your point, it depends on who's producing the thing, so perhaps your Meta Platforms or your other players in that space could create their own software solutions to that. But your smaller-tier developers who are creating a lot of the virtual content today, especially in mobile gaming. If you're a mobile game company creating a game, you're using Unity's software platform for the most part. They are the market-share leader in that. Basically in a duopoly with a company called Epic Games, which is privately held.