​

You should not give up on Unity.

We lost nearly 40% yesterday and it sucked.

Yes I am a bag holder.

But this is not one of those posts hoping to convince a hoard of retail investors to come and pump up my stock. I know that won’t be happening.

Instead, this is a post for my fellow bag holders, encouraging you not to lose hope – because I have not.

“I BeLiEvE iN tHe StOcK!!”

You’ve all heard it before.

Millions of morons read a bunch of motley fool articles, watch Cramer videos, read reddit DD, and skim hilarious memes about stocks.

Hell, they might even flip through the quarterly financials, and listen to the earnings calls.

In the rarest of occurrences, they may even read the prospectus and SEC filings.

With all that third party information – be it professional quality or memester trash – people got it in their heads that they know so many of these companies we have been trading.

Now while they are all down 70-90%, we are clutching to our phones shouting how much we believe in the companies.

Truth is, what we believe based on internet information doesn’t really mean jack.

What really matters is first hand experience with the usefulness and importance of the products.

I am a game developer, and when I tell you that I believe in the stock, it's not because I have read a bunch of crap online. It’s because I actually make games and I know countless people who use Unity.

You would not ask these people “do you believe in Unity?” That question is ridiculous.

Unity is the tool devs use to make their entire living. Asking devs if they believe in it is like asking a construction worker if he believes in Caterpillar heavy duty machinery.

Belief has nothing to do with it.

GAMING is equivalent to the drug, alcohol, sports, gambling, social media, film and music industry all rolled into one giant doobie.

Forget the metaverse.

There is a cultural revolution happening right now – and everyone with grey hair on their balls is sleeping on it.

GAMERS do not want to do ANYTHING but game.

They don’t want to watch TV.

They don’t want to go out for dinner.

They don’t want to go on family vacation.

They want to game.

It is an addiction, a passion, an obsession, a social activity. It is a lifestyle.

The overwhelming majority of kids under 18 – across the planet – fall into this category. The pandemic locked in all their gaming habits. And guess what, just like all the 20-30 year olds who grew up on nintendo and xbox, these new kids aren’t going to grow out of it.

I sincerely believe that in 10-20 years GAMING will be what all other media – social and mainstream – is.

It will be where you go to talk to the world. Whether it's to show someone an advertisement, or ask them to vote for your favourite party colour, you will find people in games.

I shouldn’t need to try to convince you of this, but there is big big big big big money in the future of gaming.

Google, Amazon, Microsoft, Facebook, Apple – the big guys in USA. They have money falling out of their ears and could be investing in ANYTHING. What are they investing in right now? Games:

Microsoft: Xbox game pass, Activision Blizzard, and failed streaming service and a failed offer on Discord.

Google: Stadia game streaming. And daming content is the biggest source of videos on YouTube.)

Facebook: AR and VR games.

Apple: Apple Arcade and VR headsets.

Amazon: Amazon game studios. Twitch. Amazon Lumberyard (a failing engine).

And in China, they are so afraid of the cultural influence of gaming, that effective last year they are literally regulating how many hours per day people can play. They are using facial recognition to enforce the law. Think about that for a moment.

Video game engines are absolutely essential and they are irreplaceable.

Let me take a moment to explain to you how we got here.

There was a time – not too long ago – when making a new video game started with a blank text document for coding. Step one was printing Hello World.

Obviously, that didn’t get you very far, and was only producing 2D junk like pong and pac man.

Eventually, as game developers got more ambitious with their ideas, companies started to realize that they should make tools for themselves to make the production of their games easier.

Before making games, they would first sort out the tools they’d use to make them. They learned these tools could be pretty easy to use, and even fun to use. This is how we ended up with companies giving out level editors and modding kits for games like Command and Conquer, Age of Empires and Warcraft in the 90s.

Pretty soon, the big companies figured out they could make tools that would be useful for multiple games.

These big tool sets would be called engines.

Then at one point, some big brains realized they could make a business of JUST making tools that would be useful for a wide array of projects.

So if you aren’t connecting the dots here: Have you ever wondered why games get nicer and nicer, and more and more complicated every single year? How did we get from Pac Man to Super Mario? And how did we get from Golden Eye 007 to Call of Duty Warzone?

Answer: IT’S FROM THE VIDEO GAME ENGINES.

The entire industry has been re-iterating on the ideas that worked last year, and making the tools and engines better and better.

As the engines are able to provide better and better tools for creation, the projects are improving.

Outside of proprietary engines used by AAA companies there are only two widely used engines for serious projects by AA and indie developers: Unity and Unreal Engine.

And AAA companies are increasingly realizing that the work of making and maintaining engines is so damn difficult, that they may as well just outsource it to the companies who specialize in engines.

That’s why you see CD Project Red moving to Unreal Engine for Witcher 4 and Riot Games using Unity for Wild Rift.

The real moat is the developers.

But the real moat is not even the engine’s themselves.

Learning to use a video game engine is the equivalent knowledge of entire university degree. It is an extreme time investment to become proficient in an engine. And it’s kind of one of those things like “praciticing law” where you are practicing because you are learning more every single day for your entire 30+ year career.

And these developers are not just teaching themselves. They are also creating content all over the internet to teach other developers.

Everyone who learns is learning from udemy courses and youtube videos.

The game development industry is moving so quickly that there are almost ZERO exceptional college or university programs to teach using the engines.

The institutions are too damn slow and engine technology is too specific for them to teach.

So to replace Unity and Unreal, not only would a competitor need to figure out how to replicate decades of engineering work, but they would also need to figure out how to train a work force of 100,000+ self-sufficient developers.

Owning the ENGINES video games are made on, is like owning the operating system a cell phone app is running on.

Owning a video game engine is a big effing deal.

It’s basically like owning the operating system for any other software.

If you own the engine, you collect royalties on the games made in them, and you have access to all their data.

For example, Unity is using in-game data to power in-game ads. (Ironically, some missteps in this AI is actually what caused their slight downgrade in guidance from 30%+ to 20-28%.)

Furthermore, if we are really moving towards a digital currency system inside of the gaming ecosystem COUGH*metaverse*COUGH, it won’t be a third party retail store powering this.

It will almost undeniably be powered by the engines, just like everything else inside of the game.

Unity vs the world

There are other engine options out there.

There are lots of poopy little ones for simpleton games, like gamemaker, godot, rpgmaker etc.

Put simply, these are not serious competitors.

Additionally, many of the AAA studios have their own internal engines. But the problem with those is that their engines have all been purpose built for their own internal games. They are not made to be super accessible for other developers, and more importantly, no one knows how to use them.

It is quite likely that all the big companies will move towards Unity and Unreal in the near future.

Let’s take a moment to compare Unity and Unreal.

In short, Unreal is more tailored towards super high end PC and Console projects. Unity is more tailored towards mobile.

Both are fully capable of the full spectrum.

A bit further detail:

With the release of UE5, Unreal has the advantage in lighting and polygon optimization (better graphics for less GPU power).

However, Unity is working on competing in both of these areas with a wide variety of tools and the extent to which they can meet Unreal’s graphical performance will be revealed in the coming months and years.

But that is not to say that high graphical fidelity is not possible in Unity. For example, I think many people would regard Escape From Tarkov as one of the most realistic shooters in the world, and that was made in Unity. Where EFT lacks is probably in their humans, and that’s the dev’s fault, not Unity’s. Unity has a great human creation tool.

Where Unity has an advantage is mostly in accessibility. With it’s foundation being in C# instead of C++, it is easier to make games in Unity. There are far more indie developers using Unity, and therefore, a much larger pool of educational resources, AND a much larger asset marketplace.

Remember that developers are very sticky. For the most part, devs and teams DO NOT switch engines after they start.

There is a very real trend that teams start in Unity with a simple 2D cell phone game, find some success, then expand into a more ambitious 3D game with the same engine they all know how to use.

Corporate politics

I think one small, but overlooked detail in the assessment of Unity vs Unreal is the politics over at Epic Games which owns Unreal.

Remember all those 5 tech companies I listed above with aims of getting into gaming?

Well they all hate Epic.

The Epic CEO Tim Sweeney kicked the hornets nest and is vocally anti big tech. He has used Fortnite as a platform to go to war with them and tried demanding they reduce their obnoxiously large 30% fee. (For the record I am on Sweeney’s side.)

He has been in court with Apple, and Apple actually wanted to ban every single UE4 game from the App Store. The only reason they didn’t was because a court ruled against the action when Epic filed for an injunction.

Sweeney has made it very clear that he would like to see all these companies busted up and doesn’t want them ruling gaming (again, I am on his side.)

The point here is that I sincerely believe all these big tech companies – which control all the PC’s, phones, consoles and VR headsets – are going to do business with Unity over Unreal at every opportunity.

The price is right

Look if you are using strict fundamental analysis to calculate the present value of Unity based on it’s current financials, the stock is and has been wildly overpriced.

But given the opportunity and moat that I have described above, Unity has HUGE intangible assets.

I look at it this way. Current market cap of Unity like $10B.

Microsoft is buying ATVI for $70B and Discord rejected an offer of $10B.

I sincerely believe if someone wanted to purchase a controlling interest in Unity, it would be much closer to that $70B figure than $10B.

With that, I know through and through that this company is worth more than what it is currently trading at.

I will not be selling anywhere near the current prices.

Everything that happens for the next few months or years is just noise.