Dear Reader,
Here I am going to attempt to value Unity Software Inc., the cross-platform game engine developer that went public through an Initial Public Offering last Friday, 18th of September 2020.
Public markets currently value Unity Software at 18 billion USD. Unity made a net loss of 163.2 million USD on revenue of 541.8 million USD last year which makes for a Price/Sales ratio of 33. Unity Software revenue grew 42 % in full year 2019 compared to 2018 full year revenue. For the last two reported quarters up until June 2020 Unity software grew revenue with circa 40% year on year at a 720 million USD yearly run rate. The negative net profit margin of Unity at approximately - 15% is not that bad actually.
I estimate the current intrinsic worth of Unity Software is around 12 billion USD. If the company continues to grow so fast it may well grow into its current 18 billion USD market valuation in 4 years and even surpass it by a wide margin.
The negative net profit margin of approximately -15 % for the last two available quarterly results actually speaks that Unity is not very far from profitability, especially in comparison with the negative net profit margins of other high growth technology companies of - 40% or even lower. The - 15 % negative net profit margin is a marked improvement on the circa - 30% negative net profit margin in the 2019 calendar year realized by Unity software.
And gaming is now hot during the coronavirus pandemic. Lockdowns seem to be coming again. And its game engine is used in other industries which require augmented reality technology, as well, like automobile manufacturing, which requires complex graphics.
All in all, I believe Unity Software is 33% overvalued currently That said, Unity Software has bright prospects in the next 2-3 years driven by the gaming boom caused by people staying at home due to the coronavirus disease.
Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn, Facebook etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".
Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.
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Respectfully yours,
Petar Posledovich
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