Can Unity Survive?

What Do I Know More About?

Unity's decline in performance is deeply tied to the macroeconomic environment. Lower ad rates and the strong dollar are prime examples. Second, game development is also development. Looking at the development industry, I've felt that rather than better technology surviving, technologies with strong communities survive through Network Effect. JavaScript and Python didn't survive because they are great technologies; I think they survived because they are versatile, easy, and convenient to use. A technology anyone can start using right away is the best technology.

Can You Understand the Financial Statements?

Unity's Reckless Mergers and Acquisitions

Unity acquired Weta Digital for $1.625 billion in 2021 and IronSource for $4.4 billion in 2022. In the process, Mergers and Acquisitions caused a huge increase in Goodwill. The problem is that no synergy emerged from these two acquisitions. Costs rose, but the expected improvement in performance never materialized.

What Is the Outlook for the Industry?

Unity's strength lies in mobile. Looking at Video Game Sales Over the Past 50 Years, the share of mobile games has risen exponentially. However, lower ad rates and the strong dollar mean this hasn't contributed much to Unity's revenue. Unity's licensing model earns revenue from companies with over $200,000 in sales, but it faces difficulties due to the strong dollar and the gaming industry's declining revenue.

I think people will have more leisure time than before. As people gain more time, they might play golf or do sports, but I believe they will play more and more games. And the metaverse world hasn't arrived yet. It may seem like a passing fad, but in the end, the metaverse is an unstoppable trend of the times.

Sharing the same codebase is very important. Even if I use good technology alone at a company, it's hard to recruit new talent properly.

What Is Its Position in the Industry?

It is a de facto monopoly. The game engine field is comparable to automobile engines or aircraft engines. Unity and Epic Games' Unreal Engine, whose largest shareholder is Tencent, split the market. Switching the tool base you already use is extremely difficult, because you've become accustomed to that tool. That is also why Adobe has survived to this day.

Conclusion

Unity's working capital is not yet at a concerning level, and it can operate comfortably for the next few years. As the Macroeconomics environment improves, I expect it can fully become a turnaround company.

I hope a turnaround like AppLovin or Carvana really happens.

Related Notes

• What matters is not volatility, but the risk of permanent loss
• Aim for the pitch you can hit