Unity Software (NYSE: U) IPO is making noise on Wall Street ahead of Friday’s debut. Some investors are claiming Unity to be one of the hottest software IPOs of 2020. Especially as the valuation is a billion dollars. Today’s article will breakdown the IPO, Unity’s product offering, and everything investors must know before investing.
Table of contents 1. Unity Software IPO breakdown 2. What does Unity Software sell? 3. What investors must know before the Unity Software IPO.
Overview of the unorthodox Unity Software IPO
Many companies are digressing from the conventional IPO plan. In a traditional IPO, the underwriters set the debut price while the retail and institutions acquire ownership. However, Unity Software IPO goes against the underwriter grain. Instead of Goldman Sachs setting the IPO price, Unity Software’s upper management is putting on the pricing hat. CEO John Riccitiello and his team will use an online bidding system to determine the price. Institutional investors will express the price they would be willing to pay for U shares. After all the institutional investors cast their price, Unity’s team will set the IPO price. Unity will allocate shares to those institutions whose bid fell at or above the asking price.
Unity is going against the underwriting grain to avoid Goldman and other bankers setting an undervalued IPO price to cater tpreferred investors demand. Despite the ambiguity of the novel pricing method Unity “originally planned to offer its stock in a range of $34 to $42”.
What is Unity Software’s business model?
Unity Software licenses 2D and 3D software via two revenue streams. Revenue stream one involves offering monthly subscriptions to content creators such as artists, architects, and engineers to access the 2D and 3D software. Revenue stream two involves subscriptions to businesses who are looking to increase their end-user engagement. Some would call Unity’s software offering revolutionary. Because for centuries, “photos and video content have largely been created in the same way by capturing 3D images through a 2D lens”.
If we dispense for the product offering and go to the financials, than the growth potential speaks for itself. For example, Unity’s revenue is up 39% YoY, as “the number of customers spending $100,000 or more increased from 515 to 716”. Also, the gaming giant decreased its net loss by 20% YoY.
Here’s what you need to know before investing in the Unity Software IPO
Before I begin I am obliged to remind our viewers that this is not financial advice but rather investment commentary from extensive research
Considering Unity Software is a tech company, investors should expect volatility after the IPO instead of linear growth. However, the price fluctuations should look to favour the bullish side. Especially as Unity is “expected to be one of the hottest IPOs of the coming wave”. Not to mention tech stocks continue to soar, which could see Unity Software pop on Friday.
On the other hand, just because Unity Software is a hot IPO does not mean it is smart to tie down all your capital. Especially when valuations are high, $ 1 Billion in Unity’s case and humans tend to overreach. Thus, investors could be overly optimistic in these first few months, which could create the perception of long-term linear growth. Not to mention that vaccine delays, continued social unrest, and a possible stock market correction could potentially affect the Unity stock price.
Overall, Unity is a solid technology company with a unique offering in the gaming sector. However, an investment in the Unity Software IPO is not without risks.
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The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Patrick McLoughlin, Senior Manager of YIG.