The team of Doug Clinton and Steve Van Sloun at Loup Ventures made a bullish case for Unity Software (NYSE: U), a company in which they have owned a stake since before the IPO in a blog post.
“Unity is on the road to becoming the next great creative software company,” Clinton and Van Sloun said.
Unity offers three major elements for a long-term thesis, the tech venture capitalists said: gaming as a social network, physical and virtual worlds merging and the growth of augmented and virtual reality.
Loup Ventures compared Unity to Adobe Inc (NASDAQ: ADBE) and Autodesk Inc (NASDAQ: ADSK), two publicly traded creative software companies.
Adobe, Autodesk Parallels: Loup Ventures notes that many of Unity’s customers are also using Adobe Creative Cloud and Autodesk products like AutoCAD, Revit and Maya.
Loup Ventures believes Unity has a shot at hitting the market caps of Adobe and Autodesk in the long term.
Current valuations show Unity trading at 24.6x enterprise value/2021 revenue estimates compared to 15.5x for Adobe and 11.8x Autodesk.
“Unity deserves a higher multiple in part as it is growing twice as fast as Adobe and Autodesk,” Clinton and Van Sloun said.
Unity’s revenue was up 39% in the first half of 2020, compared to 14% and 17% increases from Adobe and Autodesk, respectively.
Related Link: Unity Software Opens Well Above IPO Price
Unity’s Growing Subscriber Base: Unity Software will have to add 3.3 million paid subscribers and 10.1 million paid subscribers to match the respective totals of Autodesk and Adobe.
Those figures are based on an average revenue per subscriber of $880.50 for Unity Software, Loup Ventures said.
The average revenue per subscriber figure from Unity is much higher than the $435.10 and $695.53 seen from Adobe and Autodesk, respectively.
The report notes it took Adobe six years to get from zero to 12 million subscribers when it switched to its new model in 2012. Autodesk took six years to go from zero to 4 million subscribers under a similar business shift.
“Even if it takes Unity more than twice as long to reach this paid subscription level, it illustrates a plausible path for Unity to become the next great creative software company over the next decade plus,” Clinton and Van Sloun said.
Loup Ventures projects that Unity can reach the 3.3-million hurdle in five to seven years, which could boost the valuation of the company “significantly higher.”
The second hurdle of 10.1 million is seen as much harder, but Loup believes Unity has a shot at hitting the mark.
Unity’s Take: In its IPO filing, Unity listed a total market size of $29 billion, made up of $12 billion from creative solutions in the gaming industry and $17 billion seen from outside the gaming industry.
“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,” the company said.
U Price Action: Shares of Unity were down 9.06% at $90 at the close Monday.
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