IPO and U
|Sep 23, 2020||2|
So, I broke one of my rules recently-
Never invest in IPOs
I have this rule to protect against the following biases-
Social proof bias: Everyone is buying it.
Headline/Sensationalism bias: It’s trending on Twitter, suits are talking about it on CNBC.
FOMO: What if I miss out on big gains!
I at lesat wait a few quarters if not years, before putting hard earned money to work in any public company, but I bought Unity Software (U) the day it IPO’d.
I've been writing code for Unity since 2013 when it was young and free.
It's amazing how Unity has evolved over the years. Here are few games I made to strengthen my portfolio to get into CMU Entertainment Technology Program in 2013-
It was a powerful game engine then and even more powerful now. Fast forward to 2020-
It is now one of the two major game engines in the world.
Games like Pokemon Go, Fall Boys, Monument valley, and the like is built using the Unity Game Engine. More than 50% of mobile games are built using Unity. Almost all AR/VR content is made with it.
While the total addressable market is small compared to other industries, Unity has a very sticky business model. Its a rundle (recurring revenue of bundled services). Once a company commits to it, very difficult to get out of it. High switching moat. Very few alternatives, good pricing power moat too. It also has a revenue-sharing model with content creators for their asset store.
My master's program required using Unity, and so did other major game dev/interactive design programs. The next generation of game creators, 3D modelers, and even architects will be using one of Unity’s service. It also has a very strong hold over real-time interactive 3D experiences aka Augmented and Virtual Reality.
There were few problems with Unity that limited its scalability, like performance, rendering pipeline, build settings, and not being able to utilize GPU to its full strength. Unity is tackling all of those limitations aggressively (like embracing the DOTS model) opening many resources for developers.
- One of the players in the duopoly
- High switching moat
- Very intuitive product
- Loyal customer base
- Great products in the pipeline
- Recurring revenue (Saas like)
I’ve initiated a small position and will continue monitoring it for the next few quarters before piling on.