A few weeks ago, I said Unit softwaresay (NYSE: U) the share price would be volatile. Case in point: The share is almost 20% lower than overall highs after the fourth quarter of 2020’s report card and initial outlook for 2021, which was announced late last week. However, there was plenty to keep up with in the quarterly update – including Unity providing guidance on how appealsay (NASDAQ: AAPL) privacy updates (which are expected to launch in the spring) will affect the business in the long run.
I think this is the downturn in Unity’s shares that some investors may have been waiting for before making a purchase.
2020 according to the numbers
Unity increased its revenue in Q4 by 39% year-on-year to $ 220 million, and free cash flow improved to positive $ 3.6 million from negative $ 9.7 million for the same period a year ago. The company now has 793 customers who spent more than $ 100,000 at Unity over the past year, compared to just 600 in 2019. Also noteworthy: Although Unity’s platform was historically for creating 3D video games, 13% of the 793 top customers use the platform for the development of non-video games (such as movies, TV, engineering and manufacturing), compared to only 8% just a few quarters ago, illustrating the great potential this company has in the larger digital economy.
Image Source: Getty Images.
That being said, it’s been a great year for Unity. It successfully completed its IPO, ending 2020 with $ 1.75 billion in cash and equivalents and zero debt, and expects to grow by at least 23% revenue in 2021 (to at least $ 950 million). The slowdown in expansion is due to the debilitating initial effects of the pandemic (Unity gained a $ 25 million revenue benefit in 2020 as a result of the pandemic) and the handling of Apple’s privacy updates for iOS.
|
Metrics |
2020 |
2019 |
Alter |
|---|---|---|---|
|
Income |
$ 772 million |
$ 542 million |
42% |
|
Adjusted net income (loss) |
($ 65.6 million) |
($ 113 million) |
Nvt |
|
Free cash flow (acquisitions included) |
($ 72.7 million) |
($ 287 million) |
Nvt |
Data source: Unity Software.
Apple bends its muscles, but Unity bends back
But what about Apple’s privacy updates for iOS, which will encourage users of Apple devices if they do not want to act for tracking application activity? Unity estimates that in 2021 it will take a revenue hit of $ 30 million (3% of its forecast sales), assuming that Apple makes the changes sometime in the spring.
To be sure, Apple’s development app developers will force them to reconsider how they make their money. In reality, Facebook (NASDAQ: FB) Mark Zuckerberg, chief executive, has been at loggerheads with Apple over his company’s recent earnings call, saying “we also see that Apple’s business is increasingly dependent on acquiring shares in apps and services against us and other developers. Apple has therefore all incentive to use their dominant platform position to interfere with how our programs and other programs work, which they regularly do to give their own preference. ‘
Unity did not name Apple’s possible self-service activity, but did shed some light on the distribution and advertising arms of its business, which will have to deal with how apps have traditionally found their way to mobile users. John Riccitiello, CEO of Unity, spoke about the $ 30 million earnings call that iOS could have in 2021:
We can not get every last nuance out of this, nor can we understand exactly what our set-off of our market share will be, but we are confident that we will grow our advertising business with the growth of market share that has been going on for years. the corridor is. basis of strong data insights. So just-just, it’s an estimate, but we do not guess. We have a very detailed model in place and we think we understand where we are going.
And where exactly is Unity going? It is expanding its ecosystem of services to help developers advertise, deliver and monetize content on mobile devices and beyond with new AI-based analytics tools and content distribution. Apple has not blinded Unity to these privacy changes. In fact, Unity expected it to be a long time coming, and think it can gain market share in the app advertising and monetization industry over time as it can help users of its platform navigate the new obstacles the iPhone maker is planning.
Unity can actually benefit in a world where tracking device activity is disappearing (or at least becoming harder to catch up) – not to mention becoming more important as digital content creation transitions to 3D and real -time virtual collaboration model. It is an end-to-end platform that extends the creation of digital content to management once the end user has made a download and is interacting with the app.
Unity’s initial outlook for 2021 implies some short-term headwinds, but the expected growth of no less than 23% in the year (and a long-term estimate of at least 30% average annual growth) is nothing to predict do not like. Shares are trading for 20 times the expected income of 2021, still a solid premium after the recent downturn. But I think it’s a reasonable deal, if an investor intends to buy and hold for the next decade.