IPOs

What to know about Unity’s 2020 IPO

With the recent rise of Netflix Animation, it’s clear that 3D engineering isn’t going anywhere. But this industry goes beyond on-demand cinema. The services from Unity Software Inc. — a tech company working on 3D development for games, automotives, animation, architecture and more — run the gamut. As of August 2020, Unity has filed to go public, too. Here’s what to know about the Unity IPO, including Unity fundraising efforts, their IPO date and what investors should know before pressing play on their portfolio.

TL;DR

Unity Software Inc. (AKA Unity Technologies) has been around in name since 2007, but the business itself got its start in 2004. This company holds a major stake in the 3D design and engineering market, having supported Pokémon Go as well as services on Google Cloud.
Years of Unity fundraising brought the company up to a $3 billion valuation by 2018.
Unity filed their form S-1 on August 24, 2020. They admitted they’re seeking capital to eliminate some debt, but they also expect to use it for expansion.
Unity will have the “U” ticker symbol on the New York Stock Exchange, and their arrival could be any week now.
Investors should be aware that Unity has yet to turn a profit. Aside from that, their numbers look pretty impressive.
You can learn more about IPOs here.
A brief history of Unity

Way back in 2004, a company called Over the Edge Entertainment opened in Copenhagen, Denmark. Just a year later, then-CEO David Helgason and his team released a game called GooBall. And while GooBall flopped, the software the team used to develop it didn’t.

By 2007, OTEE had officially transformed into Unity Software (AKA Unity Technologies) and made its way to San Francisco, California. At this point, they’d already won a major accolade: Best Use of Mac OS X Graphics at the 2006 Apple Design Awards. When the iPhone came out in 2007, they were already on the path of mobile gaming, not distracted by yesterday’s consoles like the others. It took time for real iPhone-forward competition to catch up, proving Unity to be pretty innovative.

Fast forward about a decade and Unity had developed beyond simple mobile gaming development software. They now serve two billion active monthly end users and 1.5 million creators within the Unity Creator Community. The current CEO is John Riccitiello, who came over from Electronic Arts (home of EA Sports, among others).

Today, Unity works on:

Games (mobile, PC, console, AR and VR)
Automotive, transportation and manufacturing
Film, animation and cinematics
Architecture, engineering and construction

Some of Unity’s most noteworthy projects include Niantic’s Pokémon Go (built using the Unity Engine) and Google Cloud (specifically working on services for game developers). Their focus on real-time 3D eclipses industry, arguably giving them a greater edge than companies with a narrower perspective. But does their flexibility make a difference where it matters most — their finances?

Unity’s fundraising efforts

It wasn’t long ago that kids across the globe were getting yelled at for trespassing while they searched for virtual Charmanders in real-life locations. Pokémon Go was so successful that it actually paved the way for a series of hefty fundraising rounds for the software company itself.

The first major round of fundraising was in July 2016, and it brought in a serious $181 million from investors DFJ Growth, China Investment Corporation, FreeS Fund, Thrive Capital, WestSummit Capital and Max Levchin. At this point, the company’s valuation was $1.5 billion.

Up next was an even larger fundraising round worth $400 million. It occurred in May 2017 with the lead investor Silver Lake (who’s also invested in Airbnb and Twitter). This propelled Unity’s valuation up to $2.8 billion.

Just a year later in 2018, Unity brought in another $145 million for a $3 billion valuation.

Path to the Unity IPO

Some companies go public to raise capital that will help their company market, research and ultimately expand. Others are looking for capital to eliminate debt or repurchase equity from private investors. Unity’s motives are a bit of a combination. They are looking to get rid of some debt, but they’re after capital for other reasons, too.

It’s likely that Unity saw the 3D digital content market growing, both now and in the future. Even with a pandemic, at-home entertainment is thriving, and automotives, construction and architecture are making the grade. Whatever IPO plans they had before were surely solidified once they saw their stance at 2020’s six-month mark.

Without public investors, Unity Software’s shareholders are limited to some institutional giants and internal members. Sequoia Capital owns 24.1% of Unity and Silver Lake owns another 18.2%. The rest belongs to the company’s board, executives and directors, making for a total of 782 shareholders.

Now that the Unity IPO is underway, their lead underwriters — Credit Suisse and Goldman Sachs — will make sure that any available shares will get sold in the public domain.

What’s next for the Unity IPO?

At this point, the Unity IPO has already gone through the hard part — namely, filling out a ton of paperwork that the SEC has since approved (it’s worth mentioning that there’s no shortage of paperwork once you’re public, either). So what’s next?

Once the Unity IPO date rolls around, they’ll make their way to the New York Stock Exchange (NYSE) under the “U” ticker symbol. (Apparently, it’s still possible to score a single-letter ticker, but that’s a story for another time.)

As for price, we don’t yet have a firm answer. However, we do have the value of preferred shares from May 2019 to April 2020, which sold at $20–$22 a pop.

What’s the Unity IPO date?

Ever since the company filed their form S-1 on August 24, 2020, market enthusiasts have been on the lookout for an official sign of the Unity IPO date. Companies heading for an IPO have a tendency to keep things on the downlow until they firm up the logistics, as evidenced by the recent Airbnb IPO news as well as IPO happenings for companies like Asana.

While Unity hasn’t specified a precise date, experts say there’s a high probability it could happen sometime in September. All in all, things might be moving quickly for the “U” ticker.

What investors should know

The Unity IPO is coming at a really interesting time. Their primary competition is Epic Games, a company that just so happens to be in the midst of a legal battle with Apple. You may have heard of Epic’s most prominent creation, Fortnite.

Long story short: Apple gets a 30% commission of all digital sales within the app store. Epic’s CEO, Tim Sweeney, has had enough of it. He’s also addressing the operating system’s ever-evolving rules and regulations for consumers and developers alike. As a result of Sweeney’s lawsuit, Apple removed Fortnite from the app store. From a broader perspective, this legal issue also has the potential to crumble the thousands of developers who use Epic’s tools (especially the popular Unreal Engine).

It could be a good thing that this circumstance is happening to Unity’s own competition, but there’s something to think about here. Could it happen to Unity Software, too? Unity creators have made a collective 8,000 apps and games, and that’s a lot of downfall if something goes awry.

This isn’t scare worthy, but it is something investors should remain aware of as the Unity IPO process moves forth.

What’s more pressing for investors to know, though, is Unity Technologies’ existing financial circumstances, which just so happen to include a lack of profit.

According to the company’s S-1, Unity has seen growth. This means:

From December to June, the company has grown in size by nearly a quarter, from 2,715 to 3,379 employees.
Unity’s 2019 revenue of $542 million is impressive, especially when compared to the previous year’s revenue of $381 million.
As the years go on, their expense-to-revenue ratio is decreasing (AKA they’re earning more revenue but spending a smaller portion of it on sales and marketing). In 2018, they were at 35.3%. For the first six months of 2020, they were at just 24.8%. This is good because it means they’re getting closer to turning a profit.

But what about that lack of profit? It’s a key factor that investors should consider when looking at the Unity IPO. This fiscal year, they lost $163 million. The year before that, the number was at $131 million. So their revenue is rapidly rising, but so are their losses. It doesn’t mean the company won’t grow once public, but investors should know this before deciding whether or not to add “U” to their portfolio.

Bottom line

Take a look at this short film and you’ll quickly recognize the power and skill that lives within Unity Technologies. Take a look at their S-1 filing and you’ll see the metrics match the magic — for the most part, at least. With their specialty being 3D design, Unity is in a lucrative market, even with the pandemic in mind. Before too long, they’ll be on the NYSE and many investors’ watchlists. Perhaps the capital that comes from the Unity IPO will help this soon-to-be-public company turn a profit once and for all, but only time will tell.

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