Unity Software (U) is the world’s leading platform for creating and operating interactive, real-time 3D content; the company helps game developers create more realistic games, asserts Steve Mauzy, editor of Wyatt Research's Personal Wealth Advisor.

Unity’s platform helps game developers — from the largest publishers in the world, to midsized, small and independent publishers, to individual creators — build and operate high-quality games.

Unity’s scale and reach with industry are impressive. No one comes close. Approximately 71% of the top 1,000 mobile games were made with Unity’s technology.

Approximately 2.7 billion monthly active end users (up 63% year over year) consumed content created or operated with Unity’s technologies. The applications developed by these creators were downloaded, on average, five billion times per month in 2020.

Revenue is generated primarily along two distinct business avenues. Unity’s “create solutions” are used by content creators — developers, artists, designers, engineers, and architects — to create interactive, real-time 2D and 3D content.

The other avenue, “operate solutions,” grows and engages the end-user base. The technology enables the creators to run and monetize their content to optimize end-user acquisition. It increases the lifetime monetary value of their customers.

Revenue generated by create solutions is through monthly subscriptions. Operate solutions revenue is generated through revenue-share and usage-based models.

The schemes are synergistic. They allow Unity to generate revenue from its customers as they develop content, and then generate more revenue as they succeed and grow. One leads to the other: subscriptions from create solutions drives adoption of operate solutions.

The market potential is huge. Current revenue is a pittance in comparison. Management estimates that Unity’s technology within the gaming realm could reach $16 billion by 2025.

And the story entails more than gaming. Fortune and Global 500 companies are using Unity technology in architecture, engineering, construction, automotive, transportation, manufacturing, film, television, and retail.  These new forms of content generation represent a significant growth opportunity.

Unity completed its initial public offering (IPO) last year. The share price rocketed to a price-to-sales ratio of around 50. The share price has returned to earth. The shares are down 45% since the highs it hit in late 2020.

The shares today are priced around 28 times sales.  That still might sound pricey, but considering what investors are willing to pay for legit growth, it really isn’t.

Unity Software is frequently compared to Shopify (SHOP), which has a similar revenue-generating model and a similar growth trajectory. Shopify trades at 35 times forward revenue. Estimates. Unity is displaying all the signs of replicating Shopify’s success.

In short, I like Unity at 28 times forward revenue estimates. The potential for investors bestowing Unity with a 35 multiple appear reasonable given Unity’s dominating position within its industry. It also implies 25% upside over the remainder of 2021. Buy Unity Software up to $105.

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