Joined Apr 4, 2008
I had a day trade in CURI but sold it for a .30 scalp. Oh wells.

CML Pro members, at 8:30am PT we will release a new Spotlight Top Pick.

This may be the largest thematic we cover - a multi trillion dollar TAM.

The thematic is early, and non-obvious, and therefore finding companies that will drive it forward will take effort.

We like that version of the world. That’s our alpha.

This is our multi trillion dollar thematic and we will focus anew on opportunities with in it.

This is just one company. We will do our best to find more.
Joined Dec 23, 2009
I had a day trade in CURI but sold it for a .30 scalp. Oh wells.

CML Pro members, at 8:30am PT we will release a new Spotlight Top Pick.

This may be the largest thematic we cover - a multi trillion dollar TAM.

The thematic is early, and non-obvious, and therefore finding companies that will drive it forward will take effort.

We like that version of the world. That’s our alpha.

This is our multi trillion dollar thematic and we will focus anew on opportunities with in it.

This is just one company. We will do our best to find more.
Multi-TRILLION dollar market? Is there a company monopolizing oxygen? :lol:

Pls post co name if you can.
Joined Apr 4, 2008
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New Spotlight – A New Platform and a New Thematic

Hello all. This is Ophir writing.
Today, 4-26-2021, we add Unity (U) as a Spotlight Top Pick and for the first time ever for CML Pro we will add it to the tracking portfolio in two half positions following in the spirit of our dossier Market Intelligence: Investing to Build Wealth.
One half position will be added today and the other half position will be added 5-12-2021, the day after Unity reports Q1 earnings (5-11-2021).
Today’s portfolio insertion price:

This will be our first ever tracking portfolio dollar cost average(DCA), to account for the immediate short-term risk surrounding earnings.
It would not be the worst news of all time if Unity stock actually shook lower after earnings as we have constructed our DCA, although we have no idea what will happen in the short-term, and care even less.
As a Spotlight Top Pick, this places Unity in the second circle of this logic diagram:

We note that the company has earnings due out on 5-11-2021.
We should have our first one-on-one with the CFO and / or CEO post earnings, but we cannot relay a firm date yet.
A New Thematic
We see a decade long thematic coming and we have not heard or read any other research firm define it, so we will define it.
This may be the largest thematic we cover, perhaps eclipsing the truly unique size of the genomics space.
While Unity itself may not succeed, the thematic is virtually unstoppable and the market virtually unlimited.
This is our multi trillion dollar thematic and we will focus anew on opportunities with in it beyond Unity (U).
Although its early for Unity, just the chance that it could succeed combined with its current successes, makes it a Spotlight Top Pick.
The thematic is very early, and non-obvious, and therefore finding companies that will drive it forward will take effort.
We like that version of the world. That’s our alpha.
Unity has created a new category for platforms or at least a new category for aspirational platforms. There’s just no way to describe the company other than in those terms.
We see ‘engagement‘ as a new thematic that encompasses virtually all things. We see the market larger than even, perhaps, Unity does.
We see Unity aspiring to be a “platform for engagement,” which is not a category of platform we have ever dealt in before, and perhaps only numbered SpotlightTop Pick Fastly (FSLY) could fit into this category (as noted by Google).
We don’t know if the company will position itself as such, or if the market will appreciate it as such, but we see the possibility that some firm, some company, will come to dominate this thematic and if Unity is the one, then the growth potential that Wall Street analysts have forecast below would be understated.
This will not be a short dossier and much of it will stand as an establishing piece that we will reference as we move forward with this company.
So, it will be necessarily long so that future dossiers do not have to be.
Unity encapsulates a usage-based system one the one-hand, a software as a service subscription-based system on the other-hand, and a moat building strategic partnership segment.
It lives in the multiple thematic spaces of (i) gaming, (ii) augmented reality and virtual reality, (iii) advertising, (iv) e-commerce, and (v) broadly speaking, dare we say — the Internet.
But more than that — or let’s say enveloping all of that — is a broader thematic we care to follow — engagement and the animation of the Internet.
Everything that lives on the Internet is better for enterprises with more engagement— whether that’s downloads and screen time for some industries, or e-commerce and animation of flat images.
A more engaged customer spends more money and becomes more valuable by virtue of the engagement. Only Fastly in our current Top Picks directly addresses this phenomenon, and even so, it’s indirect in the goal (faster is more engaging).
Unity is direct in its ambitions for this goal.
As we see it at CML Pro, the next phase of the Internet will be bringing absolutely vast amounts of content that appear in two-dimensions, like games, a picture of a car, a picture of home, an apartment, office space, an advertisement for a box of cereal or even a hammer, and turning it into a 3D rendering.
Beyond all of the phenomena we discuss below, Unity offers this capability at scale, without required coding skills, quickly, and with a growing moat while touching on gaming, AR/VR, e-commerce, digital advertising, and communications as a service.
We see this “animation of the Internet” as a driving force of the new thematic engagement that encompasses virtually all things. We see the market larger than even, perhaps, Unity does.
Unity is an engagement platform and for this we claim a new sub thematic — “animation of the Internet.”
It is in this engagement platform that we are far less worried about valuation metrics today, and are far more focused on scale in a total addressable market (TAM) that we’re not even sure can be measured.
It’s virtually all things on the Internet in all spaces for all industries.
We don’t know a lot about the next 12-24 months and frankly we don’t care.
After having met with the company, we a comfortable level of conviction that Unity, if it executes and withstands competition, will become a substantial platform to all things (many things) and now is the time for this animation of the Internet to thrive.
We don’t see a great deal of price appreciation in the short-term given its valuation (see the section “Valuation”), but in the long-term, we see a reason to believe in substantial upside.
Now, on to greater detail within the thematics.
Writing that the market is “all things” is hardly useful, so we will dive deeper into the most pressing thematics that are monetizable as of today.
So, now, we go from 40,00 feet above to the ground floor in our analysis.
The thematics behind Unity (U) are all booming and the company itself is executing wonderfully. That has led to an expensive stock price, even after a significant recent sell-off.
Unityis the world’s leading platform for creating and operating interactive, real-time 3D (RT3D) content.

Creators, ranging from game developers and architects to automotive designers, filmmakers and more, use Unity to make their creations come to life.
Unity’s 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.​

The company fashions itself as a comprehensive real-time 3D platform.
As Unity sees it, the world of content and user demand is changing from a 2-D world to a 3-D world. If you prefer, they call it a change from stale, static, asynchronous experiences to interactive, high-fidelity, contextualized content.
We call it the “animation of the Internet.”
But Unity lives in the platform world — it’s very success will determine the success of other companies.
The company is agnostic, or as they call it “neutral.” That statement actually has teeth.
When a developer builds on the Unity platform, they can deploy their application across 20 other platforms, like Android, Windows Nintendo, PlayStation, iOS, and more.
That is a powerful building block, before we even get to the thematics.
While gaming is the obvious place to go, and an absolutely enormous thematic, Unity does have its sights set on other industries.
In fact, with 3D renderings, Unity claims that user engagement goes up and in the realm of engineering, costs go down.
It is this larger view of its applicability that has Unity eyeing a new category — 3D software as a platform (we call it “animation of the Internet”).
The company generates revenue in three ways:
1. Create Solutions Revenue – Create solutions subscription offerings and professional services.
This segment generated 31% of revenue in Q3 2020. In Q4, Create Solutions revenue increased 39% year-over-year.
Create avails the tools that are used to build real-time 3D applications, and that could be a game, which is where Unity started the business in 2004, but is also used outside gaming.
In general, “Create” is billed as a software as a service (SaaS), or recurring subscription revenue, if you prefer less jargon.
Through its “Unity Forma” the company refers to marketing with real-time 3D. Unity Forma empowers marketing professionals to quickly create and publish marketing content and interactive experiences from 3D product data – without needing to learn the intricacies of Unity or how to code.
It supports advanced media formats – interactive 3D, augmented reality (AR), virtual reality (VR), and mixed reality
The use case that they share is for Volkswagen (the largest auto manufacturer in the world).
Unity helped them create a configurator, in particular for their electric vehicle (EV) releases.
As of now, the majority of create is used by game companies.
2. Operate Solutions Revenue – Publisher monetization and cloud-based operations services, based on revenue-share and usage-based models.
This segment generated 60% of revenue in Q3 2020. In Q4, Operate Solutions revenue increased 55% to $134.3 million.
In general, “Operate” is billed on a usage-based system.
Several years ago, the company realized that there was substantial opportunity in continuing the relationship with customers after the Create step.
The company now takes a role in helping apps get downloaded by targeting users, which is not so dissimilar to normal advertising.
But Unity goes beyond even that step and thrusts itself deeper in to the customer relationship. The company helps with advertising placement and optimization for in-app purchases.
The company has also released a product called Vivox which is a hosted managed solution for voice and text chat.
It’s scalable and trusted by the industry’s leading titles – like Fortnite, PUBG, League of Legends, and Rainbow Six Siege.
It’s used by some of the largest games available today and gets to, dare we say, a communications platform as a service (CPaaS).
Further, it directly targets two of the fastest growing portions of gaming which are mobile (obviously) and augmented reality (AR) and virtual reality (VR).
In all, Unity has openly stated that it will be adding more features and functionality to “Operate” over time — there is a large R&D portion set for this segment.
3. Strategic Partnerships and Other Revenue – Multi-year development arrangements with tech platforms to enable software interoperability (includes Asset Store revenue).
This segment generated 9% of revenue in Q3 2020.
While not a large part of the business, yet, this segment is a substantial piece to Unity’s moat.
Unity has relationships with all of the major platforms, hardware and software companies.
In some cases, these partners will compensate Unity to assure that when their new products launch, the games built in Unity will work seamlessly on their platforms.
The company offered an example using Apple.
In the fall of 2020, when Apple introduced the M1 chips for the laptops, Unity was actually in the keynote presentation where Apple noted that everything built in app and in Unity will work very well on these new M1 chips.
In this “Strategic Partnerships segment, this can only be efficacious with multi-year relationships with the vendors.
In Q4, Strategic Partnerships and Other Revenue declined 19% to $19.1 million in the quarter and 12% to $70.0 million for the full year 2020. The quarter’s results reflect residual effects of longer deal cycles driven by COVID19 as well as the sunsetting of certain products within partners’ portfolios.
The company notes that “[t]his revenue line remains important for us, but it can be lumpy from quarter-to-quarter in terms of growth.”

Lest we be derailed by the idea that Unity is “just a gaming company,” in a rather bold forecast, the company has publicly disclosed that in a few years non-gaming revenue will be equal to or someday larger than gaming.
Unity is a platform or at least an aspirational platform. There’s just no way to describe the company other than in those terms.
As for other financial and business highlights:
* Dollar-Based Net Expansion Rate (“NER”) increased from 133% in Q419 to 138% in Q420.
* For 2020, customers generating more than $100,000 in trailing 12-month revenue totaled 793. These customers, which increased 32% from 2019, made up 77% of our total revenue. Within this cohort, 121 customers, or 15%, generated more than $1 million in trailing 12-month revenue, an increase of 86% from 2019. Additionally, 105 of these 793 customers, or 13%, were in industries beyond gaming.

* Games made with Unity accounted for 71% of the top 1,000 mobile games in Q4 of 2020.
* Monthly Active Users (MAU) who consumed content created or operated with Unity, reached on average 2.7 billion per month in Q4 of 2020, up 63% from a year earlier.
* Applications built with Unity were downloaded on average 5 billion times per month in Q4 of 2020, up 41% from last year.
* All three of the metrics reported above set new records.
* The company makes a point, often, to discuss use cases outside of gaming:
In Q4 alone, we began relationships with Newell Brands, Walgreens, and Liberte Productions working for SHOWstudio and Nick Knight. We’re entering 2021 with strong momentum.

In December, we highlighted Volkswagen’s innovative use of our vertical application, Forma, to build an engaging virtual e-commerce showroom.
In the architecture vertical, we introduced Unity Reflect in 2019, and in Q4 2020, we extended its functionality to ingest files from Autodesk’s BIM 360 so that construction engineers can access AR/VR functionality onsite on tablets, laptops and smartphones.​

As for the impact of COVID, like many technology companies, there was a push and pull, but in the end there was a slight positive impact:
[O]n a net basis, we estimate that our 2020 revenue experienced a net benefit to revenue of approximately $25 million for the full year 2020, or 3% of 2020 revenue.​

The company’s stated goal is to grow 30% year over year in the long run.
More Specific on Thematics
While Unity does a very good job of focusing investors on use cases outside of gaming, we will start there most urgently.
This first image from Statista illustrates the video game market value worldwide.

This statistic shows the video game market value worldwide from 2012 to 2020, as well as a forecast for 2023. The entire video gaming market is expected to be worth over 200 billion U.S. dollars by 2023.
The driver of this revenue comes from smartphone games and console games. Here is another chart from Statista covering the Video game market revenue worldwide in 2020, by segment.

In 2020, smartphone games generated approximately 74.9 billion U.S. dollars in annual revenue, accounting for 43 percent of the global gaming market during the measured period. Console games were ranked second with 51.2 billion U.S. dollars in global revenue.
That’s good news because those are Unity’s focus.
But in reality, all of this is driven by the number of gamers. Although very few people, even now, talk about it, at CML Pro we were very early with our call of Spotlight Top Pick Nvidia, which has seen its price rise 20-fold since being added.
One of the critical thematics in the Nvidia story was gaming as a social network. It is the social aspect of gaming that has, in part, thrust the industry forward and it is that piece that requires interactivity.
Unity focuses on a platform that builds software meant for engagement. Whether that’s for engineers or gamers, it doesn’t really matter.
Unity, by design, is intended for high usage and the social aspect of gaming is just a wonderful product / market fit.
The next chart from Statista shows the number of active video gamers worldwide from 2015 to 2023.

While there were almost two billion video gamers across the world in 2015, this figure is expected to rise to over three billion gamers by 2023.
I don’t know of many analysts talking about this as a social medium but it is, and it’s absolutely a core driving force of Unity’s platform (see: ViVox).
If we were to write a pitch for Unity it would something like, “user engagement means success and nobody does user engagement like Unity’s 3-D world.”
Consumer spending inside video games is another large industry and yet another piece that succeeds with more user engagement.
In 2019, total consumer spending in this sector amounted to 35.4 billion U.S. dollars, down from 35.8 billion a year earlier.
Unity directly addresses this market as discussed prior.
When we turn to 2020 though, just Q2 alone saw $11.6 billion in consumer spending on video games.
The video game industry needs its platform to keep users engaged and it just doesn’t feel like anything Unity does is by accident.
But video games are just one piece of part of the engagement (animation of the Internet) realm. Another obviously monetizable market is AR and VR. This chart is from Statista.

The AR and VR market sizes are projected to grow from $30.7 billion in 2020 to nearly ten-fold that number, $296.9 billion in just four years.
Unity’s 3D rendering and its Vivox are crucial elements to this market. As the company so shrewdly pointed out to us, even audio in AR/VR is 3-D.
The closer a player is to one and the positioning all impact how voice “should” sound, from direction, to volume, and echo.
We could go further on thematics, but we’ll rather conclude with a reprise: “We see the ‘animation of the Internet’ as a new thematic that encompasses virtually all things. We see the market larger than even, perhaps, Unity does.”
Now we turn to valuation for Unity.
We note that these calculations are rather simplistic and have very little supporting material other than that provided below.
This is not a proper discounted cash flow (DCF) model, so please do not rely on it as such.
Our view on valuation is that it matters, but it matters to us much less than it likely matters to others.
We see Unity as approaching an exceptionally large market with exceptionally high demand and exceptionally high measurability for an exceptionally important metric — engagement.
As of this writing the company has a market cap of $28 billion with net cash of $1.6 billion, yielding an enterprise value of $26.5 billion.
The company delivered $772 million in revenue last year (2020) with 43% growth.
Mean analyst estimates for revenue are $970 million for full year 2021, $1.25 billion for 2022, and $1.7 billion for 2023.
Here is a chart of the mean forecast growth rates:

We can see the dip in growth rate and then a reacceleration.
The company has guided to “build a company that delivers revenue growth of approximately 30% over the long run.”
It’s a rather bold statement but one which we feel comfortable making, at least for now, that Unity will grow revenue at 32% CAGR for at least the next six years (2021 included).
That leaves us with 2026 revenue at 1.32^6*$772 million, which is 4.1 billion.
The company has delivered gross margin percent just under 80%, making it rather normal for a software company in the world, if not just a tad lower than some of the others which can be at 85%.
The company has yet to formally announce aspirational EBITDA margin per cent, but we’ll take our best estimate and land on 35%, which would be about $1.5 billion.
If these numbers are correct, we would have a company, in five-years, with 30% revenue growth and 35% EBITDA margin, far exceeding “the rule of 40,” which is a sort of fantasy line in the sand that represents exceptional software names (revenue growth + EBITDA margin per cent).
At the “rule of 65,” if these numbers hold, along with a large TAM, we would feel comfortable with an EV to EBITDA of 40 times, or 40 x $1.5 billion yielding an EV of $60 billion or 130% higher in six-years — a number which yields 15% CAGR in EV.
There are risks to this failing, as you will read in the section to follow, but we see opportunities for outperformance even to these rather bold (and simplistic) forecasts.
As for shareholders, it reads like an all-star team:

We hold Silver Lake, Resolute, and D1 in high regard and Unity has greater institutional ownership (74%) than MSFT (70%), AAPL (58%), AMZN (57%), and just below GOOGL (79%).
Its institutional ownership is on par with numbered Spotlight Top Picks ROKU (73%) and PINS (72%).
One clear piece of information that could change our conviction on Unity would be if the company discloses a long-term aspirational EBITDA margin per cent below 35%.
Then some of these calculations don’t look as good and we would reconsider the value proposition.
But all of this underappreciates what we view as a far larger opportunity for Unity, when we get out of the “box” that defines it as a 3D software company, and allows for the possibility that it is an engagement machine.
We don’t know if the company will position itself as such, or if the market will appreciate it as such, but we see the possibility that some firm, some company, will come to dominate this thematic and if Unity is the one, then the growth presented above would be understated.
Now that we have covered the “good stuff,” let’s turn to the risks that we get “bad stuff.”
With great ambitions (and valuations) come great risk.
* While Unity is a leader now, this new thematic is simply far too big to be owned by one platform. This is one of the few markets that are large enough to entice even the mega caps.
At least in our view, a trillion-dollar company would still be intrigued by the animation of the Internet enough to try it themselves.
In many cases, these mega caps own the real estate, like Apple’s App Store or Google’s Play Store, or even further, Amazon’s e-commerce store front.
These mega caps could partner with Unity and have in the past, but let us never underestimate the power of trillion-dollar market caps.
* The technology may move so fast by virtue of its clear monetization appeal that even a new entrant could introduce such disruptive technology that Unity rather quickly loses favor and risks obsolescence.
* The technology, on the other hand, could become so ubiquitous that it becomes commoditized, leaving very little pricing power and destroying rents to be earned by Unity.
* Other things that we don’t know now but will know then. The unknown is often times the harshest disruptor of a business model.
We see a new super thematic — engagement and a driving sub thematic “the animation of the Internet” colliding.
It is the intersection of this thematic with a clear and present need, that creates a massive opportunity for the companies that can enable it.
If Unity succeeds, no one will care about its $28 billion valuation in April of 2021. As urgently, if Unity fails, so too no one will care about its valuation in April of 2021 — it will experience great value destruction from any height.
Today we introduce Unity as an aspirational “new category” platform in a new thematic, and care little about today’s valuation, one way or the other.
Thanks for reading, friends.
The author has no position in Unity (U) at the time of this writing.
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Joined May 31, 2007
Still cringe at the money I lost on CCIV.... A great come up was in the making (got in first at $18 back in Jan). Then I went crazy with a couple buys ($30-50 range) leading up to the merger announcement in Feb thinking it would explode. And here we are today with it just chilling in the $20s.

That’s when I gave up on swing trading. Only playing the long game.
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