Unity Software Shows Solid Near 2020, Plans Apple ‘Privacy’ Updates in 2021

A few weeks ago i said Unity softwareof (NYSE: U) the share price would be volatile. Case in point: The stock is down nearly 20% from historic highs following the company’s fourth quarter 2020 balance sheet and initial outlook for 2021, which was released late last week. However, there was a lot to like about the Quarterly Update – including Unity providing advice on how Appleof (NASDAQ: AAPL) the privacy updates (which are expected to roll out this spring) will affect its long-term business.

I think this is the pullback in Unity stock that some investors may have been waiting for before making a purchase.

2020 in figures

Unity increased fourth quarter revenue 39% year over year to $ 220 million, and free cash flow improved to $ 3.6 million from $ 9.7 million for the same period a year ago. The company now has 793 customers who spent more than $ 100,000 with Unity in the last year, down from just 600 in 2019. Also note: While Unity’s platform has always been about creation of 3D video games, 13% of those top 793 customers were using the platform for non-video game development (such as movies, TV, engineering and manufacturing), up from just 8% just two years ago. quarters – illustrating this company’s enormous potential in the digital economy.

Image source: Getty Images.

All in all, it has been a great year for Unity. It completed its IPO, which closed 2020 with $ 1.75 billion in cash and cash equivalents and zero debt, and expects its revenue to grow at least 23% in 2021 (at at least $ 950 million). The slower expansion is the result of the initial effects of the pandemic (Unity made a profit of $ 25 million in 2020 due to the pandemic) and the treatment of Apple’s iOS privacy updates.

Data source: Unity Software.

Apple flexes its muscles, but Unity flexes back

But what about Apple’s iOS privacy updates, which will prompt Apple device users if they want to turn off app activity tracking? Unity estimates that it will need $ 30 million in revenue (3% of its forecasted sales) in 2021, assuming Apple applies the changes in the spring.

To be sure, Apple’s move will force app developers to rethink how they monetize their content. In reality, Facebook (NASDAQ: FB) CEO Mark Zuckerberg was hostile with Apple during his company’s recent earnings call, stating that “we also see that Apple’s business is increasingly dependent on gaining shares in apps and services against us and on other developers, so Apple has every interest in using its dominant platform position to interfere with the functioning of our apps and other apps, which they regularly do to prefer theirs. ”

Unity did not address Apple’s potentially self-interested activity, but shed light on the distribution and advertising branches of its company that will need to deal with the way apps have traditionally found their way to mobile users. Unity CEO John Riccitiello had this to say during the earnings call regarding the $ 30 million effect iOS could have in 2021:

We cannot draw all the nuances from this, nor understand precisely what will be the compensation for our market share, but we are convinced that we are developing our advertising business with a growth in market share that has lasted for many years. solid information base on the data. So net-net, that’s an estimate, but we’re not guessing. We have a very detailed model in place and we think we understand where we are going.

And where exactly is Unity going? It has grown its ecosystem of services to help developers publish, deliver, and monetize content to mobile devices and beyond with new AI-powered analytics and content delivery. Apple didn’t blind Unity with these privacy changes. In fact, Unity predicted this would happen a long time ago, and thinks he could gain market share in the advertising and app monetization industry over time, if it can help users of its platform overcome the new hurdles the iPhone maker anticipates.

Unity could actually benefit in a world where tracking device activity is disappearing (or at the very least becoming more difficult to achieve) – not to mention the growing importance of digital content creation shifting to a collaborative model. virtual 3D and in real time. It is an end-to-end platform from digital content creation to management once the end user has downloaded and interacted with the app.

Unity’s initial outlook for 2021 implies short-term headwinds, but expected growth of at least 23% over the year (and a long-term estimate of at least 30% average annual growth) doesn’t is not a problem. Stocks are trading 35 times the expected turnover in 2021, still a significant premium even after the recent pullback. But I think it’s a reasonable deal, assuming an investor plans to buy and hold for the next decade.