Top Gaming Stocks

This Is The 1 Gaming Stock I’m Buying Right Now

Unity Software is one of the leading platforms used by game developers to attract and expand their user base, making it a top buy today.

The gaming industry has been one of the fastest-growing verticals in the last few decades. The COVID-19 pandemic also acted as a significant tailwind for companies part of the gaming space as entertainment options were limited. While most economies have reopened, the long-term drivers for companies operating in this space remain robust, making stocks such as Unity Software (NYSE: U) top long-term bets right now.

Unity Software provides game developers and creators a platform to run and monetize gaming content across devices. The company went public in September 2020, and the stock has since returned 116% to investors, valuing Unity Software at a market cap of $42.7 billion.

Let’s see why Unity Software is the one gaming stock I’m buying right now.

A look at Unity’s financials

Unity Software sales have risen from $380.75 million in 2018 to $772.5 million in 2020. In Q3 of 2021, its revenue grew by 43% year over year to $286.3 million, while adjusted operating loss widened to $12.1 million from $8.4 million in the year-ago period.

Unity confirmed that 973 customers generated over $100,000 in sales in the last 12-month period, up from just 739 in the year-ago period. The company’s dollar-based net expansion rate stood at a robust 142% in Q3, suggesting existing customers increased spending on the Unity platform by 42% in the last year.

Analysts tracking the stock expect sales to rise by 41.2% to $1.1 billion in 2021 and by 28% to $1.4 billion in 2022. Its loss per share is also forecast to narrow from $0.39 per share in 2020 to $0.14 per share in 2022.

What I like about Unity

Unity is one of the largest platforms that provide users an opportunity to create and operate interactive or real-time 3D content. Its Create Solutions can launch, run and deploy real-time 2D and 3D content. The company’s Operate Solutions provides customers the tools to expand and engage their user bases and monetize their gaming content.

At the end of 2020, Unity claimed to have 2.7 billion monthly active users who consumed content created or operated with its suite of solutions, increasing 63% year over year. The Unity platform saw an average of over 13,000 new projects every day in 2020.

Unity also emphasized that 71% of the top 1,000 mobile games were created on the Unity platform, and 94 of the top 100 game development studios were its customers in 2020.

Risks to Unity’s share price

Similar to most other growth stocks, Unity is also trading at a premium. It’s valued at a forward price to sales multiple of 30.5x, which is extremely steep. Further, the company remains unprofitable even on an adjusted basis which exacerbates the risks associated with its sky-high multiples.

Unity remains vulnerable in a border market sell-off and will grossly underperform the indexes when markets turn bearish.

Unity’s growth potential

Unity is well-positioned to benefit from expansion opportunities through increased adoption of its suite of solutions. The games developed on its platform recorded an average of eight billion hours of gameplay each month in 2020, indicating high engagement rates, making it a top bet for those eying investments in the gaming sector.

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