Prospectus Summary
PROSPECTUS SUMMARY This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, including the sections titled “Risk Factors,” “Special Note Regarding Forward-Looking Statements,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless the context otherwise requires, all references in this prospectus to “we,” “us,” “our,” “our company,” “Unity,” and “Unity Technologies” refer to Unity Software Inc. and its consolidated subsidiaries.UNITY SOFTWARE INC.
Overview
Unity is the world’s leading platform for creating and operating interactive, real-time 3D content.
We believe the world is a better place with more creators in it. Creators, ranging from game developers to artists, architects, automotive designers, filmmakers and others, use Unity to make their imaginations come to life.
Our platform provides a comprehensive set of software solutions to create, run and monetize interactive, real-time 2D and 3D content for mobile phones, tablets, PCs, consoles, and augmented and virtual reality devices. As of June 30, 2020, we had approximately 1.5 million monthly active creators in over 190 countries and territories worldwide. The applications developed by these creators were downloaded over three billion times per month in 2019 on over 1.5 billion unique devices.
Content built on the Unity platform offers end-users a fundamentally more engaging and immersive experience than traditional static content. Content made with Unity is interactive, allowing end-users to connect with the content and with one another. Content made with Unity is real-time, allowing it to instantly adapt to end-user behavior and feedback. Content made with Unity allows graphics to be expressed with 3D shape and depth, permitting multiple viewing angles, and enabling augmented and virtual reality.
Real-time is not just a part of the end-user experience. Building content on Unity offers creators significant advantages in development compared to traditional content creation tools. Creators can visualize and iterate on their 2D and 3D creations in real-time and collaborate with each other to edit content simultaneously. This can lead to significant reductions in design and development cycle times.
Improvements in computational power, greater connectivity and the proliferation of devices like smartphones, PCs and consoles have enabled an explosion of immersive and interactive content. The gaming industry has benefited enormously from these factors, with over 2.5 billion gamers driving the fastest growing sector in media today.
Unity has built its reputation in gaming, and our scale and reach in this industry are significant. We estimate that in 2019, on a global basis, 53% of the top 1,000 mobile games on the Apple App Store and Google Play and over 50% of such mobile games, PC games and console games combined were made with Unity. Unity’s platform helps game developers—from the largest publishers in the world with teams of hundreds, to mid-sized, small and independent publishers, to individual creators—build and operate high quality games, rapidly and efficiently. Unity games can be built once and deployed and operated across more than 20 platforms, including Windows, Mac, iOS, Android, PlayStation, Xbox, Nintendo Switch, and the leading augmented and virtual reality platforms, among others. As gaming has proliferated, the business models for content have evolved beyond one-time purchases to include advertising and in-app purchases. Unity enables these new business models by providing creators with the solutions they need to easily run and monetize their content.
The dramatic growth of end-user demand for interactive content is driving industries beyond gaming to embrace the advantages of real-time 3D content. Creators are leveraging our platform to provide faster content creation and efficient deployment across formats and use cases. Today, Fortune and Global 500 companies in industries such as architecture, engineering, construction, automotive, transportation, manufacturing, film, television and retail are using Unity across many new use cases, including automobile and building design, online and augmented reality product configurators, autonomous driving simulation, and augmented reality workplace safety training. These new forms of content are emerging parts of our business and represent a significant opportunity for growth.
Our platform consists of two distinct, but connected and synergistic sets of solutions. Our Create Solutions are used by content creators—developers, artists, designers, engineers and architects—to create interactive, real-time 2D and 3D content. Our Operate Solutions offer customers the ability to grow and engage their end-user base, as well as run and monetize their content with the goal of optimizing end-user acquisition and operational costs while increasing the lifetime value of their end-users.
We offer our Create Solutions primarily through monthly subscriptions and our Operate Solutions primarily through revenue-share and usage-based models. This allows us to generate revenue from our customers as they develop content and also as they succeed and grow. Subscriptions for our Create Solutions drive adoption of our Operate Solutions. For the year ended December 31, 2019, and the six months ended June 30, 2020, 63% and 64%, respectively, of our Operate Solutions revenue that came from customers with over $100,000 in annual revenue was from customers that also used our Create Solutions.
We see significant opportunities to grow our business. We believe today we address a total market opportunity of approximately $29 billion across both gaming and other industries. Looking to the future, we believe there are large opportunities within and beyond the industries and use cases we currently serve that represent a market potential multiple times larger than our opportunity today. We are investing aggressively in research and development and direct sales and marketing to support the expansion of our business in games and across multiple industries and use cases.
We have experienced rapid growth. Our revenue grew from $380.8 million to $541.8 million for the years ended December 31, 2018 and 2019, respectively, representing year-over-year growth of 42%, and from $252.8 million to $351.3 million for the six months ended June 30, 2019 and 2020, respectively, representing period-over-period growth of 39%. We generated net losses for the years ended December 31, 2018 and 2019, and six months ended June 30, 2019 and 2020, of $131.6 million, $163.2 million, $67.1 million and $54.1 million, respectively, which included $20.9 million, $44.5 million, $14.8 million and $21.7 million, respectively, of stock-based compensation expense. We reduced our net cash used in operating activities from $81.1 million to $67.9 million for the years ended December 31, 2018 and 2019, respectively, and from $19.8 million to $15.4 million for the six months ended June 30, 2019 and 2020, respectively.
The Future is Interactive, Real-Time 3D
For almost a hundred years, photos and video content have largely been created by the same means—capturing three dimensional images through a 2D lens and projecting them onto a 2D surface. Technology has introduced digital cameras, lenses for capturing images at astonishing resolutions and powerful software tools that allow creators to edit and manipulate images with limitless possibilities. Still, the basic processes and technology related to content and content creation revolve around building 2D, asynchronous, non-interactive, static content.
The world is changing. Leaps forward in compute power and bandwidth are enabling an explosion in interactive, real-time 3D content—led by games and now spreading rapidly into other industries. We have moved from a static content world to one of lifelike, dynamic content—where 2D images are no longer projected to create video, but where fully interactive, 3D virtual objects, environments and complete worlds can be digitally rendered in real-time using software. Nowhere has real-time 3D had a larger impact to date than in gaming, which has grown from a less than $15 billion industry 20 years ago to one generating over $140 billion in annual revenue today. Gaming is now the fastest growing category in media with over 2.5 billion gamers worldwide.
Interactive, real-time 3D is:
Interactive, real-time 3D is also driving innovation in the content creation process. For example, with real-time technology, creators can live-edit the characteristics of objects in games and applications they design, and these changes can be rendered and displayed faster than the blink of an eye. This instantaneous adaptation allows for creators to simultaneously create and visualize, simplifying the creative process and making collaborative content development more seamless and efficient.
While interactive, real-time 3D has fueled the rise of gaming, the opportunities for this technology and the benefits for creators are impacting many other industries as well. For example, architects, designers and project partners use real-time 3D to simultaneously contribute to the planning and development of a building with rapid, cost-effective iteration. Similarly, real-time 3D technology is driving efficiencies in car development and sales cycles, allowing for interactive, life-like models of cars to be rendered in real-time. In film, real-time 3D technology allows a creator to edit and review a scene instantly, rather than waiting days for server farms to fully render a digital scene. Across these industries and more, our solutions and technology are unlocking new forms of creativity and cost-efficiency that are impossible with traditional tools.
Secular Industry Trends Working in Our Favor
Technology Has Enabled the Transition to Interactive, Real-Time 3D Content
Technology now enables creators to develop immersive, interactive content in real-time. These advancements, which are raising expectations from end-users across industries, are driven by:
Real-Time 3D is Proliferating Across Industries
End-users have come to appreciate the value of interactive, real-time 3D content and increasingly expect similar immersive, interactive experiences across both personal media and commercial content. Creators across a wide array of industries beyond gaming are using real-time 3D across new use cases, including automobile and building design, online and augmented reality product configurators, autonomous driving simulation and augmented reality workplace safety training, among others.
The Problem: Creators Need New Ways to Develop, Run and Monetize Their Content
Traditionally, the creation of high fidelity graphic experiences required the development or use of custom, disparate point solutions. In order to build real-time 3D applications, large teams with many engineers would need to invest significant time and resources in the development of tools and technology in order to make even the most basic applications. Building these tools from scratch is both very expensive and time consuming for creators. Today, to serve the increasing demand for real-time 3D content, creators need a comprehensive solution that allows them to efficiently build, run and monetize new applications to satisfy that demand.
Business and monetization models are also changing. For example, in gaming, traditional one-time purchase and downloadable content models are moving to free-to-play, which requires new monetization methods such as advertising and in-app purchases. Games have also increasingly migrated to live services models, hosted in the cloud and regularly updated for content and new features. These new business and monetization models require new technologies and new solutions.
Traditional content development is done on a per-platform basis, often requiring creators to recreate and recode content for each individual platform. This problem is exacerbated by the diversification and explosion in the number of devices and form factors. Creators require solutions that enable them to create content once and deploy it to multiple platforms seamlessly, without having to develop and test code specific to each platform or having to maintain highly specialized teams.
Our Market Opportunity
We believe today we address a total market opportunity of approximately $29 billion across both gaming and other industries.
Looking to the future, we believe there are large opportunities within and beyond the industries and use cases we currently serve that are not captured by the above market opportunity estimates.
We believe these future opportunities represent a market potential multiple times larger than the approximately $29 billion total market opportunity we serve today.
Our Solution
Unity is the world’s leading platform for creating and operating interactive, real-time 3D content. Our platform includes our Create Solutions and Operate Solutions, which complement each other and together provide a comprehensive set of solutions that enable our customers to create, run and monetize their content across a broad range of third-party content distribution platforms.
Our Create Solutions are used to create, edit, run and deploy real-time 2D, as well as high definition, real-time 3D content. Our products include custom scripting tools and a high-definition render pipeline for developers; graphics, animation and audio tools for artists; and navigation, networking and user interface tools for designers.
Our Operate Solutions offer customers the ability to grow and engage their user bases, and to run and monetize their content irrespective of whether the content was created in Unity. Our monetization products, Unity Ads and Unity IAP (In-App Purchases), help developers to maximize the revenue potential of their content. Our end-user engagement products, such as deltaDNA, provide developers with the capability to perform deep analytics to optimize end-user engagement and behavior. Finally, we also offer solutions to simplify the delivery of content and provide back-end management, such as Multiplay for multiplayer hosting in games, or Vivox to enable player-to-player communications in games.
Our platform delivers numerous benefits to creators across organizations of all sizes. These benefits include:
Significantly Faster, High-Quality Production with Real-Time Technology
Unity’s platform enables creators to simultaneously visualize and iterate on their 2D and 3D creations in real-time. Our platform’s real-time technology significantly reduces the time and resources required by creators, whether working individually or in groups, to create and operate high-quality, immersive, personalized and interactive content.
Create Once and Deploy Anywhere
Creators use Unity to create once and deploy anywhere. Without writing any platform-specific code, creators can deploy their games and applications on more than 20 platforms, ensuring their content reaches a broad audience.
Comprehensive Set of Solutions for Creators of All Types
The Unity platform provides creators of varied backgrounds and levels of expertise a comprehensive set of solutions to meet their needs in creating, operating and monetizing their content across platforms. For example, a team of content creators can use our real-time 2D and 3D Create Solutions rendering tools to develop a high-fidelity application with a massive virtual world. The creators can then use our Operate Solutions to host their application, grow and engage their end-user base and run and monetize their content. Together, our solutions serve the entire lifecycle of a game or application, and the needs of its creators, through a single platform.
Access to Leading Technology
We offer creators leading edge technology that keeps pace with each major new hardware platform, allowing them to focus on creating content rather than working to keep pace with dozens of rapidly evolving specifications and capabilities. We continue to invest to ensure our platform best leverages the capabilities of these rapidly evolving platforms to serve the future development and operational needs of content creators.
Our Competitive Strengths
We believe that we have a number of competitive strengths that will enable our market leadership to grow. Our competitive strengths include:
Our Platform
Our core competitive strength is the breadth and depth of our platform. We offer a comprehensive set of solutions to create, run and monetize real-time 3D games and applications. Creators can onboard through any of our solutions and leverage our platform to serve their needs at every stage of growth. As a result of the strength of our platform, as of June 30, 2020, we had a global reach of over two billion monthly active end-users, who consume content created or operated with our solutions on over 20 platforms. We saw an average of more than 15,000 new projects each day in the first half of 2020.
Market Leadership in Game Development with Industry-Leading Brand
We are the market leader for the creation of all types of video games, ranging from games developed by the largest global publishers, including AAA studios, to games developed by mid-sized, small and independent developers and freelancers. We estimate that in 2019, on a global basis, 53% of the top 1,000 mobile games on the Apple App Store and Google Play and over 50% of such mobile games, PC games and console games combined were made with Unity. Ninety-three of the top 100 game development studios by global revenue in 2019 were Unity customers. We see significant opportunities for expansion within these existing customers through increased Create Solutions subscriptions and additional adoption of our Operate Solutions. Games developed on the Unity platform recorded an average of over eight billion hours of gameplay per month in the six months ended June 30, 2020. Many of the most successful games across the globe were developed using Unity.
Relentless Focus on Innovation, Talent and Research and Development
We have invested over $450 million in research and development over the last two fiscal years alone to further develop our solutions. Our market-leading position and reputation for innovation support our ability to recruit highly talented software engineers and developers. Additionally, although the significant majority of our revenue growth has been organic, we have completed over a dozen acquisitions to date. Acquisitions have primarily included smaller teams with specific product expertise. Our Applifier, deltaDNA, Finger Food, Multiplay, and Vivox acquisitions brought greater functionality into our platform, added key innovation talent to our team and furthered our goal of being the one-stop integrated platform for all creator needs.
Extensive Data Footprint and Sophisticated Analytics
Our scale affords us access to a vast amount of end-user engagement and platform performance data. We continuously capture and analyze valuable end-user behavior and application performance data from over 50 billion in-app events per day across over 20 different platforms as end-users interact with games and applications made with Unity. This data and analytics capability allows us to optimize content performance, end-user acquisition and engagement and monetization based on predicted lifetime values of our customers’ end-users, driving value for both our customers as well as their end-users.
The Unity Creator Community
Unity has a very large, active global community of real-time 3D creators, with approximately 1.5 million monthly active creators that developed over 8,000 games and applications per month in the six months ended June 30, 2020. We have a highly engaged base of creators, with users of our Unity Pro product spending an average of 4.9 hours per day actively using our platform in the year ended December 31, 2019, and an average of 5.1 hours per day for the six months ended June 30, 2020. In addition, within our creator base are a large number of students and independent learners, including those enrolled in high school and university classes. We invest in providing student and school licenses as well as developing curriculum components, Unity-specific portions of academic programs and learning content to ensure students can learn and train on our software. With this knowledge and continuing education, students prepare for, and excel in, careers using real-time 3D and Unity.
Our Growth Strategies
We are investing aggressively to strengthen our global leadership in gaming through continued investment in our products and solutions, continued subscription growth and product usage within existing customers, and expansion of our customer base across game publishers of all sizes. In parallel, we are investing in the development of products, services and go-to-market strategies that serve industries beyond gaming, where we believe our long-term potential is many times greater than in gaming.
Investing in Product Innovation for Growth
We will continue to innovate with new products, features and functionality. In addition, we will also continue to pursue acquisitions of products, teams and technologies that complement and expand the functionality of our platform, add to our technology expertise and bolster our leadership position by providing access to new customers or markets.
Growth within Existing Gaming Customers
We have opportunities to broaden our relationships with existing customers, by expanding our Create Solutions subscriptions, growing Operate Solutions usage and increasing the number of Unity solutions our customers use. We grow our subscriptions by expanding within and across multiple studios within a single publisher. We grow usage of our Operate Solutions products primarily through the success of our customers’ games and applications. We also grow as our customers add additional Unity solutions. Our dollar-based net expansion rate, which measures expansion in existing customers’ revenue over a trailing 12-month period, grew from 124% as of December 31, 2018 to 133% as of December 31, 2019, and from 129% as of June 30, 2019 to 142% as of June 30, 2020, demonstrating the power of this strategy.