Could Unity software become the next Apple?

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Unit software ( U 5.01% ) the stock has soared impressively since then Metaplatforms(FB 3.49% ) announced in October 2021 that it would be betting big on the Metaverse, a three-dimensional virtual world where people could learn, play, socialize and collaborate in real time.

Unity shares jumped 35% in the space of just three weeks after Meta’s announcement on Oct. 28, 2021, before a sell-off in tech stocks knocked its rally out of whack. However, savvy investors should focus on the big picture. Unity could win big from the metaverse because it provides a platform to create and operate interactive 3D content in real time.

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It wouldn’t be surprising to see Unity become the Apple (AAPL 2.17% ) of the long-term metaverse world. Indeed, Unity provides an essential product that could help the Metaverse take off, and it already enjoys a dominant position in a lucrative Metaverse niche. These characteristics can be seen as similar to Apple, which controls a good portion of the global smartphone market and is driving the adoption of 5G smartphones with its huge installed base.

It should be noted that Unity stock has outperformed Apple since its IPO despite the volatility experienced by the first.

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But can Unity stock appreciate at a faster rate than Apple in the long run and become a tech giant like the iPhone maker? Let’s find out.

Unity is expected to grow at a faster rate than Apple

Unity Software released its 2021 financial results on February 3, revealing a huge increase in revenue. The company’s revenue increased 44% during the year to $1.1 billion. Even better, Unity expects its revenue to grow by 35% in 2022 in the middle of its forecast range, indicating that its momentum is here to stay.

Apple, on the other hand, ended fiscal year 2021 (for the twelve months ending September 25, 2021) with a 33% increase in revenue. However, the tech titan’s revenue in the first quarter of fiscal 2022 (for the three months ending December 25, 2021) grew at a slower pace of 11%. Apple’s slower growth in the last quarter can be attributed to supply chain constraints, but a closer look at the projections indicates that analysts are not expecting very high growth rates from Apple. the company.

Year-over-year revenue growth (%)

FISCAL YEAR 2021

Financial year 2022 (estimated)

Financial year 2023 (estimated)

Apple

33%

8.10%

5.70%

Unit software

44%

35%

27%

Source: Yahoo! Finance. FY=Fiscal year.

Additionally, Unity Software is expected to experience an annual profit growth rate of nearly 70% over the next five years. Apple’s earnings, on the other hand, are expected to grow at an annual rate of just 15% over the same period. A closer look at the end markets these companies operate in will reveal why analysts expect Unity to grow at a much faster pace.

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The smartphone market is Apple’s bread and butter, as the company derives most of its revenue from the sale of iPhones. The company generated $71.6 billion in iPhone revenue last quarter, a 9% increase over the year-ago period, or nearly 58% of its revenue.

Now, the slower growth pace of the smartphone market could become a problem for Apple in the future. IDC estimates that the global smartphone market grew by 5.7% in 2021 to reach 1.35 billion units. Apple would have controlled 17.4% of this market. The market research firm predicts slower smartphone shipment growth of 3% this year. IDC also estimates that smartphone shipments over the next five years could grow at a compound annual rate of just 3.5%.

Apple is therefore now in an entirely different smartphone scenario compared to the launch of the iPhone in 2007. Annual smartphone sales that year were only 122 million units according to third-party estimates, and they have took off a lot in the coming years before hitting last year’s figure. In simpler terms, Apple is now operating in a mature market where growth is going to be slow. Unity Software, meanwhile, is currently where Apple was 15 years ago.

Third-party research estimates that the virtual reality (VR) content creation market is growing at a compound annual rate of 77% and could reach $46.5 billion in revenue by 2026. And Unity is already getting the most out of it. lucrative opportunity.

Unity pulls the right strings

The growing demand for real-time, interactive 3D content is already driving tremendous growth at Unity Software. Most importantly, the company is building up a loyal customer base that should help it make the most of the huge revenue opportunity that lies before it.

For example, the number of customers contributing $100,000 or more in revenue to Unity in the last twelve months jumped 33% year-over-year in the fourth quarter of 2021, compared to 138% in the of the period of the previous year. This indicates that Unity customers are spending more money on its offerings.

It’s also worth noting that Unity is said to control half of the video game engine market, the space where the company has earned its chops by helping game developers create interactive 2D and 3D worlds. The metaverse is expected to unlock another massive opportunity for the company, as its solutions can be applied to this emerging technology trend to create virtual reality content.

This would add to the video game engine market, which is expected to generate nearly $6 billion in revenue by 2027, up from $2.2 billion in 2019.

Ultimately, Unity Software is currently on the cusp of a new technology revolution, just as Apple was when the smartphone revolution took off. And given the utility Unity’s solutions will bring to markets like the Metaverse and VR, it wouldn’t be surprising to see this tech stock become the next Apple.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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