By Wallace Witkowski
Unity Software Inc. is known for making software to create videogames, but the company hopes to make the world more like a videogame by pushing its platform to designers from nongaming fields.
Founded in 2004, Unity’s main business is its gaming engine, which competes with Epic Games Inc.’s Unreal Engine. Five years ago, however, the company realized its 3-D tools could be used for other applications outside of gaming.
“We’re a company born from gaming,” Unity chief executive John Riccitiello said in a filing with the Securities and Exchange Commission. “But we see so much more.”
Late Thursday, Unity /zigman2/quotes/221035391/composite U +2.95% priced its initial public offering at $52 a share , according to a person familiar with the matter, after the company on Wednesday raised its price range to $44 to $48 a share from last week’s expectation of $34 to $42 apiece. With 25 million shares in the offering, and options to underwriters for another 3.8 million shares to cover overallotments, Unity stands to raise at least $1.3 billion. Underwriters include Goldman Sachs, Credit Suisse, BofA Securities, and Barclays.
Unity will have up to 267.2 million shares outstanding after the offering, including overallotment options, giving Unity a valuation of $13.7 billion, which would more than double the company’s valuation from July 2019 of about $6 billion. The company will have a single class of common stock, but the board reserves the right to issue up to 100 million shares of stock to fight off a hostile takeover.
So far in 2020, it has been a good year for IPOs. The Renaissance IPO ETF /zigman2/quotes/207665280/composite IPO +3.00% is up 54%, compared with a 22% gain in the tech-heavy Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP -0.06% and a 4% advance in the S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.46% . Unity’s IPO is expected to arrive at the end of a wave of software IPOs, with Snowflake Inc. /zigman2/quotes/220991541/composite SNOW -0.90% , JFrog Inc. /zigman2/quotes/220991554/composite FROG +1.43% and Sumo Logic Inc. /zigman2/quotes/220991529/composite SUMO +2.18% already going public earlier in the week.
For more: Red-hot IPO market sends Snowflake surging and JFrog leaping
Unity is expected to price its IPO Thursday evening and begin trading Friday morning on the New York Stock Exchange. Here’s what you need to know about the company.
During an age in which everything related to technology is offered “as-a-service,” the videogame industry is also being structured as such, Chris Gardner, Forrester research director, told MarketWatch.
Most people consume their movies, TV and music through a subscription service, and videogames are following that trend — They are no longer pieces of software bought in a box, but rather streamed, dynamic and easily updated pieces of software that are downloaded or accessed through a subscription across multiple platforms with in-app purchases.
Smaller developers hoping to make games that fit those trends can turn to Unity or Epic Games, which is also known for its popular “Fortnite” game. Unity has offered its gaming engine — a software system that provides a framework in which developers can build their games without having to reinvent the wheel — for free and only starts charging a licensing fee after a certain revenue milestone has been crossed, Gardner said.
“Unity is very attractive to independent developers,” Gardner said.
Unity estimates that its gaming engine was in 53% of the top 1,000 mobile games on Apple Inc.’s /zigman2/quotes/202934861/composite AAPL +2.11% App Store and Alphabet Inc.’s /zigman2/quotes/205453964/composite GOOG -1.81% /zigman2/quotes/202490156/composite GOOGL -1.83% Google Play in 2019, and that more than 50% of mobile games, PC games and console games combined were made with its engine. The company also notes that 93 of the top 100 game-development studios by global revenue in 2019 were Unity customers.
Unity and Epic compete with their gaming engines and bolt-on services for game developers, but Epic, unlike Unity, has its own line of games and game store.
Unity brought in $541.8 million in revenue for a $163.2 million loss in 2019, compared with $380.8 million revenue for a $131.6 million loss in 2018. Epic’s annual revenue in 2019 was estimated at $4.2 billion, according to Forrester.
Epic Games was dropped from Apple and Google’s app stores when the company loudly disputed how much of a cut the tech giants should get from carrying games like “Fortnite” on Aug. 13 .