Investment Idea: U

U is the leading platform powering the creation and operation of real-time 3D (RT3D) content, poised to dominate the infrastructure layer of the burgeoning metaverse economy.

The Setup

The street consensus on U is generally positive, recognizing its dominance in gaming and increasingly in other industries like automotive and architecture. However, we believe the market is still underestimating U's potential in the nascent metaverse ecosystem. Current valuations are primarily based on extrapolations of gaming industry growth and modest expansion into other verticals. Our analysis suggests that U's role as the essential engine for creating immersive, interactive experiences across multiple metaverse platforms will drive significantly higher growth rates and market share than currently projected. This underestimation stems from a failure to fully appreciate the scale of the metaverse opportunity and the network effects that are rapidly consolidating around U's platform.

Further, many analysts focus primarily on paid subscriptions and seat licenses, overlooking the significant upside potential of U's revenue-sharing model for metaverse applications. As more developers build and monetize successful metaverse experiences using U, the company’s revenue stream will diversify and become less dependent on traditional software licensing, leading to a more predictable and higher-margin revenue base. We believe this shift will be a key catalyst for multiple expansion in the coming years.

Finally, concerns about competition from open-source platforms like Unreal Engine are overstated. While Unreal Engine remains a viable alternative, U’s ease of use, cross-platform compatibility, and extensive ecosystem of tools and assets provide a significant competitive advantage. The vast majority of developers, particularly those targeting mobile and VR/AR platforms, prefer U’s integrated workflow and readily available support.

Business Model Deep Dive

U operates a platform that provides tools and services for creating, running, and monetizing real-time 3D (RT3D) content. Its core offering is a game engine, but the platform has expanded to serve a wide range of industries, including gaming, automotive, architecture, engineering, and entertainment.