Unity Software (Symbol: U) is the world’s leading platform for creating and operating real-time 3D content. On 10/18, there were buyers of nearly 2,000 May $145 calls for $21.60 to $22, over $3.8M. This follows buyers recently in the May $190 calls and February $130 calls. The November $170 calls were also bought 1745X in late September while put sellers active in the May and January options. The $40B company trades 25X cash and 33.5X EV/sales with 25-30% annual growth expected in both FY22 and FY23. The company posted 48% revenue growth in Q2, their first ever at a $1B revenue run rate and raising guidance as they see strength across both games and non-game verticals. The company continues to see significant opportunity as more content moves to 3-D, real-time and interactive with multi-decade potential and a space that they dominate currently. Their market share exceeded 50% of all games at year-end in 2020 and they’re even bigger now in hot growing spaces like AR/VR and among key artists while adding new, scalable capabilities in areas like 4K and low-latency, UHD streaming. Unity also continues to expand into non-game verticals like automotive which remains a huge tailwind to their TAM.
Analysts have an average target for shares of $131 with a Street High $160. CSFB raising estimates last week seeing Unity’s Create and Operate businesses as synergistic operations with the former serving as a customer onboarding channel to drive the latter and the logical long-term conclusion potentially being that Unity eventually shifts Create to a consumption-based model with a lower paywall. The firm also estimates Unity and Unreal represent two-thirds of the number of games built, suggesting a duopoly with the main competition being in-house IP technologies. Macquarie started coverage at Outperform on 8/31 calling them a one-of-a-kind company with market share leadership in both its business segments and impressive growth potential beyond its current markets. Short interest is 5.75%. Hedge fund ownership rose 17.65% last quarter. ARK Investment a buyer of 3.7M shares and now their 11th largest position with a $1.3B position.