Will This Company Become the Operating System of the Metaverse?


The metaverse could be an $800 billion trend by 2028, according to a study by Emergen Research, up from a paltry $48 billion today. Whether this precise prediction plays out over the next several years remains to be seen. But suffice it to say that many people agree that the metaverse is a big trend to watch this decade. And Unity Software (NYSE:U) could be a big winner.

In this video from Motley Fool Backstage Pass recorded on Jan. 10, Fool analyst Sanmeet Deo talks with fellow analyst Clay Bruning and contributor Jon Quast about why Unity is such a compelling way to invest, not just in video games (its core market), but also in the metaverse trend.

Jon Quast: Unity Software, Clay and I ranking this is our number 1, but Sanmeet has elected to talk about Unity. Why do gaming show reviewers need to be thinking about Unity?

Sanmeet Deo: Unity, and feel free to chip in after I just give a quick pitch here. The way I think of Unity is the operating system for virtual reality, augmented reality in the metaverse is basically the software system, the gaming engine. Currently, it’s a gaming engine where developers can use their tools and through their Create Solutions business segment, they can create games that most of the mobile games and games out there designed on Unity. It’s a powerful gaming engine. It’s almost in a duopoly with Epic Games, which has their Unreal Engine. Unity’s engine is a little easier to use. Epic’s is a little bit more complicated, so Unity focuses on those entry-level developers and developers that are looking. They want to capture early stage developers and follow them and grow with them throughout the life cycle of their careers.

What I like a lot about Unity as well is not only the is a gaming engine, it has optionality and it’s working already on different verticals and you name it, architecture, film. They made a great acquisition of Weta, which was Peter King’s software company that basically they used to create the special effects for The Lord of the Rings movies, and other movies. Those professional level tools are going to be accessible to Unity’s set of developers. That’s just going to augment the amount of things that they are going to be able to do.

Unity is like the picks and shovel business for gaming and augmented and virtual reality. That’s just a quick take for me if you guys have anything to add on to it.

Quast: What recently blew my mind in looking at Unity is something I hadn’t considered. Well, Unity is already the market share leader when it comes to creating 3D content. According to Unity’s management, for 3D content, it only has 2% market share when you look at the rest of the worldwide video creation and image creation. 3D only has 2% market share and Unity is the market share leader of that. As 3D content grows more and more, who stands to benefit most from that? Unity. When you look at a market-share perspective, Unity’s runway here just looks enormous.

Clay Bruning: The only thing I’d add is outside of just their mobile gaming dominance is their ability to penetrate new industries. Just, I think this weekend or maybe it was late last week they announced the partnership with Hyundai, the car manufacturer from South Korea about creating a digital twin factory. Essentially what they’re saying is, we’re going to create that factory in a virtual manner so you can solve problems from halfway across the world if you want. You don’t actually have to be in the factory. You can be in this digital twin virtual factory. My mind thinks about, this is applicable not only to auto manufacturers but really any industrial manufacturer company architecture, obviously anything related to the metaverse. That’s the only thing I would add that gets me really excited about Unity’s future prospect.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning 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 richer.