So what's the real time engine? It is
a piece of software, but
it's so much more than that. Unity is an environment built to build video games, but these other industries are getting on board. Whether that's film or games, construction, or automotive,
this creative medium is available to everyone.
Using Unity from the back seats, we can test how rain will look and the wiper's performance. We built all
the tools of cinematography into virtual reality.
In the construction field, we use Unity for everything in Denzel.
I can have a small team but deliver on AAA quality.
This is a feature of animation. Architecture.
And automotive industry.
Game development.
Creators are the pacesetters, dreamers, those with an imagination.
Thank you, and welcome everyone to Uniti's first financial results webcast, highlighting our results for the Q3 of 2020. It's great to have you join us today after a successful initial public offering. With me on the call today are John Riccitiello, President, Chief Executive Officer and Executive Chairman and Kim Jabal, Senior Vice President and Chief Financial Officer. After their remarks, we will open the call to a question and answer session. I'd like to remind all participants that during this conference call, any forward looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.
Expressions of future goals, including business outlook, expectations for future financial performance and similar items including without limitation expressions using the terminology may, will and believe and expressions which reflect something other than historical fact are intended to identify forward looking statements. Forward looking statements involve a number of risks and uncertainties, including those discussed in the Risk Factors section of our filing with the SEC. Actual results may differ materially from forward looking statements. The company undertakes no obligation to revise or update any forward looking statements in order to reflect events that may arise after this conference call, except as required by law. For more information, please refer to the cautionary statement included in the slides we have posted to our Investor Relations website at investors.
Unity.com. In addition, during the meeting, we will discuss non GAAP financial measures. These non GAAP financial measures are in addition to and not substitute for or superior to measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non GAAP financial measures and a discussion of the limitations of using non GAAP measures can be found in today's earnings release, which is available on our website and as an exhibit to our filings furnished to the SEC. With that, thank you for joining us and I will turn it over to John.
Thank you, Richard. Hello and good afternoon. Thank you for joining us today for our first public company earnings call. I hope you and your loved ones are safe and in good health in these difficult and turbulent times. I want to begin by thanking the amazing team that got us to this point from our founders 14 years ago to our employees around the world, our advisors and our new investors.
And we would not be here today without our customers, the creators, the developers, the artists and the dreamers. We're looking forward to sharing details about Unity and our Q3 results with you today. As many of you are aware, we capped our Q3 with a successful IPO that we conducted virtually. The IPO, or as we like to call it, the UPO, was the 2nd largest software IPO in the last decade and was executed under an innovative structure, which gave us better visibility and demand for optimal pricing and allocation. It also gave our employees the opportunity to sell a portion of their shares invested options on day 1 of trading.
We welcome all of our new shareholders here today. Kim Javal, our Chief Financial Officer, will detail financials in a few minutes. But before we dive in, I want to highlight 3 key points on our Q3 performance. First, despite several macro cost currents, we grew revenue 53% compared to Q3 of last year, and we generated a 79% non GAAP gross margin, and our non GAAP loss from operations was $8,000,000 versus $28,000,000 last year. 2nd, the metrics that drove those numbers were good as well.
One of the KPIs we focus on is dollar based net expansion rate. And for the Q3, that ratio hit 144%, thanks to a combination of strong execution and some tailwinds from COVID induced work from home policies. And third, you can't deliver good financials without a strong foundation of innovative products and services as well as tuned go to market strategy. Here are some of the interesting statistics. In the 1st 9 months of 2020, we've seen an average of more than 5,000,000,000 downloads per month of applications built on Unity.
And as of the end of Q3, we had approximately 2,500,000,000 monthly active end users who consume content created or operated with our solutions. 94 of the top 100 game development companies by global revenue are Unity customers. And as of the end of Q3, 10 of the top 10 auto manufacturers are using Unity. Unity is the world's leading platform for creating and operating interactive real time three d content. Creators and developers use Unity to build, to run and monetize interactive real time 2 d and 3 d content for more than 20 different platforms, including mobile phones, tablets, PCs, consoles and augmented and virtual reality devices.
Much of the content consumed today like TV and movies, websites, social media, YouTube and TikTok is static or non interactive and are 2 d digital content. Real time 3 d interactive content allows end users to connect with the content and with each other. Media built on Unity's real time three d platform gives users agency over their content, allowing them to control what they experience next rather than being passive consumers of content. This interactivity together with a full three d perspective allows for a fundamentally more engaging and immersive experience than traditional content does. We believe that most of the world's content will in time be real time three d and it is our intent to be the driver towards this future.
Now it was a bold idea some years ago that a third party engine like Unity could grow and ultimately be the technology under most of the world's games. And it is a bold idea today that industry after industry will convert from their 20th century dependence on non interactive low engagement 2 d tools to embrace real time three d. Technologically, we build a single platform that enables our customers to build, operate and monetize applications. With Unity, you build an application once and that application just works seamlessly on more than 20 platforms. Instead of mastering and porting their content to additional platforms, developers can focus on creating great content and on multiple paths to success.
And while there are blockbuster AAA games that cost $60 or more upfront, today far more games are initially free to play. And that's great for consumers, but game developers need some revenue to pay the bills. And they do this through in game advertising and in app purchases that make the game more engaging and more enjoyable. And that's where operate services from Unity come into the picture. 5 years ago, we launched our monetization products.
Unlike traditional ad works that optimize exclusively for eCPMs, we designed our platform to help our customers maximize engagement, enjoyment and the lifetime value or LTV of their users by leveraging unique data and proprietary AI tools. This might sound like a relatively easy task, but it was not. We started with a few 100,000 player behavior data points, but with a lot of work, we gradually built one of the leading data networks for gaming. We've reached the scale where we ingest 60,000,000,000 in app events per day. This data helps us deliver better LTV and lower cost acquire for our customers and this has helped us build 1 of the largest monetization platforms focused on the games market.
We also offer additional operating solutions including Delta DNA end user engagement, multiplay cloud hosting and orchestration and end game communications through VBox. Today, these technologies mostly apply to gaming, but we see many opportunities to extend our platform into other industry verticals in the future. We are a market share leader and have strong healthy growth opportunities across the board, both in Create and our Operate businesses. We're not resting on our laurels. We have big ambitions.
1st, we continue to focus on our core gaming market and believe we can increase our business in this sector significantly in the coming years by continuing to innovate and leverage our data advantage and adding new create and operate tools and services. Beyond gaming, we began to focus on new verticals just a few years ago. We're growing into new verticals like industrial, automotive, architecture, engineering and entertainment, rapidly solving more and more customer problems and identifying more and more use cases. And while we're gaining rapidly in these sectors, we are also examining new industries to enter and expand. Let me give you a few examples.
Toyota worked with Unity to create a mixed reality system for diagnostics and repairs for their dealerships and service networks. This was a high stakes decision because repairs have a big impact on brand perception. Toyota used to manually tag 20,000 pictures to ingest them into a learning algorithm, a process that took about 200 hours. Toyota turned to Unity to build accurate 3 d models of the body and engine compartment. This reduced Toyota's workflow time to 30 minutes, a 400 times reduction.
Valero DeVault train was invited to bid on the design of a 36 story, 390 foot tall Bell Tower and Bell Park office building in Denver, Colorado. This was a complicated project because the location and the size of the tower matted to city planners. Vallejo deployed our architecture product, Unity Reflect, to geolocate the building on-site and develop an augmented reality digital twin. By using Reflect, Valerio DeBalt Train built a prototype in less than 4 weeks and won the bid with the city. Now, I want to wrap with a discussion of what we hope to turn into a tradition on these earnings calls.
A brief highlight of some of the new innovative products that our development teams have built. In September, we launched Allego Microgame, a free to use set of modules that allows entry level users to build and share their first three d game in less than an hour using a simple no code interface and adding the Lego micro game to our growing portfolio of templates that help new users start creating successfully. We believe the low code, no code market will become a substantial part of Unity's business in the years ahead. And we are grateful to work with such a well regarded brand to help bridge the gap between physical products and the virtual world. And for Unity, we have built a low friction on ramp for budding new game designers.
In Q4, we're launching another application specifically designed for verticals outside of gaming. It's called Forma and it's an example of our ability to build technically advanced applications that are intuitive and easy to use. The shift to working from home has accelerated the move to virtual commish. Meanwhile, today's shoppers are more sophisticated and they expect to see their visions come to life in real time. And this is where Form a comes in.
One use case for Form a, as an example, is an automotive manufacturer that creates advertisements, product guides and a car configurator that are engaging, interactive and in real time three d. This gives customers a much richer visualization for their potential purchase, including colors, fabrics and accessories. And that way, Form a gives marketers a tool to differentiate themselves from their competition. We've made great progress, but we are just getting started. At Unity, we believe the world is a better place with more creators in it, and we intend to realize this belief by making real time interactive 3 d the dominant form of content worldwide.
As a company, we will invest for the long term to ensure we deliver for our customers, the Unity developer. And through this long term investment orientation, we aim to drive significant growth for many years to come. We welcome our new shareholders on this journey. Now let me turn over the discussion to Kim Javal, our CFO, to go through our financial results.
Thank you, John, and thank you all for joining us on our first earnings call. This is an exciting time and I want to echo John's thanks to the entire Unity team for their hard work and dedication that has led us to this moment. We are very pleased to have started our public company life with such a strong quarter. Let me begin by reviewing our financial results. Revenue for the Q3 of 2020 was 201,000,000 dollars compared with $131,000,000 in the Q3 of 2019.
This is an increase of 53% year over year. Our revenue mix has shifted in 2020 towards operate solutions with operate, create and strategic partnerships accounting for 60%, 31% and 9% of revenue respectively in Q3. 1 of our key metrics, dollar based net expansion rate sustained its recent high levels coming in at 144% compared to 132% as of September 30, 2019. Please do note that some of our expansion in 2020 was driven by COVID tailwinds in the operate business and this may result in a tough compare in 2021. Drilling down into our operating groups.
Create revenue grew 45 percent to $63,000,000 while the first half of the year introduced some COVID related headwinds as game developers adapted to work from home environments and deal cycles slowed, we saw recovery in Q3 in our create business. Our customers are turning to Unity to help them create and build everything in real time three d from the next generation of office buildings to self driving cars to the video games enjoyed by millions of people around the world. Operate Solutions had a very strong quarter growing 72 percent versus last year. These results reflect strong execution and product improvements alongside higher end user engagement with games built by our customers. This is driven in part by COVID tailwinds.
Our operate solutions are aligned with the success of our customers. This is really important. When our customers grow their engagement with their end users, when they grow their revenues through the use of our monetization tools, they grow their usage of our services and this drives our revenue growth. Strategic partnerships revenue was flat with last year at 18,000,000. This reflects slower deal cycles driven by COVID as well as the sunsetting of certain products within our partners portfolios.
This revenue line remains very strategic for us, but it can be lumpy from quarter to quarter in terms of growth. Non GAAP gross margin was 79%. This compares to 81% in the Q3 of last year and 78% in the Q2 of 2020. The year over year decline was due primarily to higher professional services driving growth in new verticals with the acquisition of Finger Food in April as well as increased hosting costs to meet the demands and growth from our operate solutions business. Non GAAP loss from operations for the Q3 was $8,000,000 or negative 4 percent of revenue compared to a non GAAP loss from operations of $28,000,000 or negative 21% of revenue in the same period last year.
A substantial part of the year over year improvement was driven by one time savings that we recognized related to COVID, primarily related to travel, events and facilities. And now turning to our guidance. So to set the context, I want to reiterate that 2020 has been a pretty unusual year with lots of uncertainty related to COVID. We aren't counting on our normal Q4 seasonal jump in our operate solutions business as we believe the increase in user engagement that typically happens around the Q4 holidays has essentially already happened. And in addition, additional uncertainty for our game development customers occurred with this year's announcement from Apple of new policies for the IDFA, which was originally slated for introduction in Q4, but is now delayed until sometime in 2021.
From an expense perspective, we are expecting to reinvest some of the material COVID driven OpEx savings that we achieved throughout the year into incremental marketing programs and hiring in R and D and sales in order to continue to drive our revenue growth. So for the Q4, we expect revenue of $200,000,000 to $204,000,000 and a non GAAP loss of operations of $35,000,000 to $40,000,000 or approximately 17% to 20% as a percent of revenue. Our revenue outlook for the full fiscal year ending December 30 1, 2020 is $752,000,000 to $756,000,000 This is up from $542,000,000 in 20.19, reflecting year over year growth of 39% to 40%. We expect non GAAP loss from operations for all of 2020 to be 66 to 71,000,000 or approximately 9% as a percent of revenue down from 92,000,000 in 2019. We expect the weighted average fully diluted share count to be approximately 321,000,000 for the Q4.
I'd like to point out that Q3 free cash flow of positive $11,000,000 benefited from strong performance within our operate solutions business alongside an increase in networking capital. And although we're not guiding free cash flow, you should expect it to remain volatile quarter to quarter and we expect to drop back into negative free cash flow in Q4. And that concludes my prepared remarks. So thank you again to the entire Uniti team for the hard work that has led us to this point. And thank you to all of our new shareholders.
We are honored that you have decided to join us on this journey. And with that, John and I are now happy to take your questions. Richard?
Great. Thank you, Kim. So what I'll do is I'm just going to call on the analysts to ask the questions. And so that when I call on you, you just self unmute. And then in the interest of time, could you just please lend yourself to one question and then one follow-up and then once you're done, just change your status back to mute.
So that would work. So we'll start today with Heather Bellini at Goldman Sachs.
We're not.
Yeah. Heather should be on. She's on. She just said she was on her cell phone.
Okay. Now you can hear me.
Hey. Got
it? Better.
Perfect. Sorry. Sorry about that. Look, I had a question. Obviously, we all know that the iOS 14 changes were pushed into 2021.
When you think about the impact for next year, can you walk us through kind of how you're thinking about that? And then how that might have given the delay, how that might have impacted your guidance in Q4 related to what you were expecting would have happened at the time that you guys were on the road since this happened kind of while you were in the middle of the road show? And then the other question I would have would just be related to all of the momentum in gaming that's obviously happened as a result of the pandemic. How are the trends looking versus normal seasonal and how should we be thinking about that as we look into next year as well? Thank you so much and congratulations on the IPO.
I'll take a high level and Kim may want to dig in a little bit. On a high level, Heather, our view was that visavis OS 14 and the changes in IDFA, we would not anticipate a material disruption in Unity's business. We did expect there to be and we had imagined that there would be a relatively modest, very near term disruption that would have occurred in Q4 as the demand side started to wrestle with exactly how effective each of the relative platforms was for user acquisition, we view ourselves as a monetization platform less so an ad platform. We believe we've got a fundamental advantage on the data side and that advantage on the data side means that at least we feel will be materially less impacted by issues IDFA. And we analogize somewhat to what happened with GDPR, where the anticipation was the entire market would go into a bit of a flux and then there'd be a little bit of a reordering in market shares.
And that's exactly what did happen. And in that Unity was a net beneficiary. We're not guiding you to believe that we think we're sure it's going to be a net beneficiary situation. But, no, we haven't seen anything material and don't anticipate something material for us. In terms of the gaming industry, there's no question there's an increase of usage.
Now that affects some of our business, not all of it. It doesn't have a material effect on the create side, for example. And in terms of seasonality, one of the things that Kim and I were talking about just yesterday is we would normally see a more aggressive increase on particularly monetization, but also operate and hosting in Q4, as consumers gamers would be home a lot during the Thanksgiving to Christmas holiday. They're already home. They can't go home twice.
And so, as much as we, you know, would normally anticipate a pickup in Q4, that in that pickup would be directly attributable to more game time because of people being home and out of school. It's hard to see how we get that same lift in Q4. A consumer basically can't be home twice. And as Kim put it yesterday in a conversation with me, the analysis we have suggests that we pulled a little bit of the seasonal benefit into Q3.
Great. Thank you so much.
Kim, anything to add on any of that?
I don't think so.
I think you covered it. Thanks.
Okay, great. I'll go to Brad Zelnick at Credit Suisse.
Great. Thank you so much. Can you guys hear me?
Yep.
Yep. Awesome. Congrats on the Q1 out of the gate. John, you now have a big war chest post a successful IPO and no shortage of exciting growth opportunities ahead. Can you just help us understand how you approach investment priorities?
Where are the most impactful areas of investment as you think about your overall opportunity set? And maybe how has competition with the larger capital base changed your view?
So I feel like I'm stuck with one of those Abe Lincoln moments where the I know the 2 hour answer to that question, but I'll try to give you the 2 minute answer. The first thing is the money in our bank account doesn't really affect at all our investment priorities. The capital is there, should it be necessary. But when we're looking at M and A and we're looking at our P and L investments in our business, they're not really affected by any sense of need to have the capital burn a hole in our pocket. It's just not at all the way we think.
We're strong believers, Kim and I, and defining a pretty tight framework around where our capital should go and where our expenses should go. And the consideration was never we have extra money, so how do we spend it? So that's just not at all who we are. And I'm a pretty fundamental believer that constrained resources generate creativity and creativity is what we run on. That's our fuel.
The second thing is when you think about how we spend our money, I broadly categorize it in 2 broad ways of looking at it. One is we're building a specific application or enhancing a specific application that lives on top of our platform and Reflect would be an example of that, but also network code, what we've done with collaboration, what we've done with our cloud content delivery network. These are things that fit right on top. There's a very specific use case that's identified and enabled by that capability. And through that, we believe we generate more users and more revenue.
Sometimes it's a create revenue stream, sometimes it's operate revenue stream, sometimes it's both. So, we essentially stack rank all of those ideas and we invest in the ones where we have the right locus of talent and return expectations to make us feel good about making that investment. The second area we invest is a broad and less easy to answer question around raw capability. And that is about the underlying performance of the engine, the underlying data capability and AI capability behind our operate services. In a way, maybe the second one is learning how to make a new thing in a fast food restaurant.
The first one is getting a college education. It's not as obvious that there's an instant return. But one of the benefits, at least for me and so many on our team, is we spent decades on this type of technology and understand by way of example that our DOTS technology won't yield an immediate improvement in our near term revenue prospects that is significant. On the other hand, it's exactly the way our business needs to be built in sort of 2023, 2024, 2025 timeframe and we won't be sitting on legacy code with a material deficit in terms of what we have to dig out of. In other words, we're future proofing our business.
Some of what we've done this generation, we've been spending for 2 years by way of example to support the M1 hardware that Apple announced and credited us just this week. And supporting both PlayStation 5 and the Xbox, the 2 series that are now the X and ES, working with over 60 development studios on the console launches, lots of launch titles built on Unity. None of that yields an instantaneous return for us. What it spells for us is higher market shares next year and the year after. And so, what we have to get right in Unity always is a combination of that which drives a near term attach to new revenue streams that we can articulate and identify.
And second, that which lifts the whole boat, data engineering, raw capability, platform support that sets up market share growth 2 3 years out. And we balance both of those to yield what we believe is the best possible outcome driven by a combination, I will admit, of financial considerations and ego around market share. We like to grow.
Thank you for the very thorough answer to my question. That's it for me, guys.
Great. Thanks, man. Hey, Bhavan, can you William Blair?
Great. Thank you. Congrats. Let me echo that. It was a really good quarter coming out of the gate there to all of you and the team.
I'd love to touch on a couple of things that tend to be more tactical. I usually tend to avoid tactical questions. But I'd love to talk, one, a little bit about you're seeing a couple of the companies follow suit. So one is Roblox. And I'd love to understand how you think about Roblox in the space and your view of where it fits visavis the Unity platform and how investors should think about it.
So some sort of high level thoughts around that, maybe even some more detailed thoughts about
would be really helpful. I got a quick follow-up.
So that's a that's probably my favorite question today. So thanks for asking that. So one of the things we didn't do in our roadshow and on our investment presentation so far is talk about the exhaustive list of growth opportunities that we see in our business. We talked about the ones that are right in front of us that we can define and dimensionalize in terms of scale and we have a product that pretty much proves out our case. 2nd preface point is there are precious few professional development tools that have any business at all, any scale business at all with consumers.
Photoshop is one of the few things that has crossed over into having meaningful consumer traction. And it's a function of sort of a connect a collection of things happening at all the right ways and all the right times. So in the case of Photoshop, smartphones put a digital camera in everybody's pocket. Most of us didn't use to carry them around before we carried phones with us. And then you have social expression through TikTok and Instagram and Facebook and other social media Snap, where photos are the currency of the day.
So the consumer needed a tool, Photoshop met the need and they have a material business that crosses out of the professional sphere with a tool started and built a meaningful business with the consumer. We have that exact same opportunity as we speak today. I believe that this notion that we talk a lot about of the world's a better place with more creators in it and a 1,500,000 MAUs of people use our tool. I believe in the fullness of time, there will be 100 of millions of people using Unity on a monthly basis And a significant complement of them will be consumers. Consumers wanting to express themselves with better videos on TikTok or an Instagram or a Facebook, where real time three d makes a difference and a positive difference to help them drive more eyeballs and more users.
We recognize that opportunity. It's incremental to the path that we have played out for all of you with our investment thesis. And I think it's something that you'll see us do more and more against that consumer opportunity in the quarters and years to come. Now visavis Roblox, Roblox is one of many indicators that this thesis is right. There's a lot of 8, 10, 12 year old creators that are actually most of them who actually create and Roblox are probably older than that, but the users are younger.
They're using the create side of Roblox and no code environment to create things within the Roblox universe. Minecraft is similar. I can name a couple of dozens, a couple dozen games that have done that and or MMOs and others that were content creation was at the core of one of the gameplay mechanics. That's an indication that that opportunity is real. So I guess to answer your question, I don't feel at all that we have this isn't being sort of ignorant of it.
I don't believe we're going to see the Minecraft in the Roblox world come after us so much as to identify a new marketplace that we can build into. And I think we have massive natural advantages. And it's one of the reasons we've released things like reflect 5 buttons for a content creator as an architect. The recent Lego release that we did online that I highlighted in my prepared comments, which is bringing that no code environment to users, getting good traction there. So expect us to do more to build out an entirely new user base within the Create side of our business in the months quarters ahead.
Yes, I know it's helpful and forthright. My 10 year old is a customer of Unity. So I'll leave it at that. I'll ask my next question really quick follow-up on ASPs. You increased price for the first time.
Left or December customers thought about it. Was there any pushback? And then I know you really sort of said we don't want to do it again, but for the value add, there's the opportunity to increase price given what you provide, which is a ton of value. How do you think about that strategically? Thanks.
Well, I mean, the honest truth is, I think we've got a situation where we could probably double price and lose 2%, 3%, 5% of our users. And if my number one priority was to serve our investors first, I would do just that. And but that's not my first priority. My first priority is to serve you in the long run. And my strong view is real time three d is going to be without doubt the largest form of media on the planet.
It's most games are built that way today. But very few of the movies that you watch, very little of the social media, you don't go to your doctor and look at a real time three d model of your heart, you should. I can give you dozens upon dozens upon dozens of use cases that will move into the arena of real time 3 d. And if I start framing for you what I see on the horizon with some of the hardware, you will believe me even more. So I believe we have a market that will double, double and double again.
And I believe we have an opportunity to establish for Unity north of a 75% or 80% market share in the fullness of time. And that the best use of our mine time and the best use of our investment is to build towards that outcome. Yes, pricing is easy and yes, we will do it at some point. But I've watched short term greedy lead to lesser long term outcome And I want to focus on the right long term outcome to best serve our customers, our employees and our shareholders.
Got it. That's really helpful, John. Thanks for the color.
Thanks, man. Ryan at Bank of America Merrill Lynch, are you on?
Let's
see. Okay. Well, we'll circle back to Ryan. Mario, would you Mario, Lou and Barclays?
Hey, can
you guys hear me?
Okay. There you go.
Yeah. Okay. Yeah. Go ahead.
Hey, guys, thanks for taking the questions and congratulations on the Q1 out of the gate. This is more a longer term one for John and then I have a shorter term one for Kim. So Unity really kind of stands out in the gaming space with the seat license business model. And I definitely appreciate those benefits. For mobile games as you think about in game transactions?
I know Kim touched a little bit on this in her prepared remarks, but how much consideration do you and the board give to a business model that will allow you to capture, you know, not just Unity ad revenue, but perhaps total revenue by developers?
So, you should have been in my last board meeting. It was a central point and there's parts of that, Burbnak, can share with you and parts of it that I can't. So you're correct in saying that our take rate in gaming overall is not high. It's about 0.4%. When I talk to people in the industry, they have a mental picture that it must be at least 2%, 3%, 5%, 10%.
I don't think they're wrong. I'm not telling you I can get there tomorrow. I have the benefit of having been involved in publishing north of $40,000,000,000 of the games in my life. And I'd say the one thing I hated more than anything was a royalty model or rev share to a tool maker. And in fact, I blew every deal up that ever looked like that.
And I was on the buy side of Unity many years ago for their 1st commercial customer and encouraged them not to do that. It's a particularly unfriendly model, when it comes to content creating tools. You don't want to give Photoshop a royalty on your photo if it ends up in the in some large social media outlet. You don't feel like you should owe them a percent. But suffice it to say, if you take a look at what we're trying to do with now cloud content delivery, what we're doing in hosting, what we're doing on monetization, what we're doing and you'll see many more tools that will allow us to generate new users within our development teams to bring more revenue onto the platform.
I have every ambition to do exactly what I said in the road show. As I said, I believe we can increase our business in gaming as much as 10x and that's what we're after. So for clarity, I 100% agree with the sentiment and I want to get there 1 brick at a time, over the course of the next handful of years.
Yes, that's very helpful insight there. And then, just a quick follow-up here. I believe in the S1, you guys talked about how a good percentage of your operate solutions revenue comes from create customers. Can you speak to the overlap during this quarter, how that trended versus maybe some of the disclosure you guys gave in your IPO filing? Thanks.
Sure. I can take that one. We're not going to republish those specific metrics every quarter, so I would direct you to the S-one in which the overlap was 55% of our customers over 100 ks that are using both Create and Operate, And I can just say that that really will be that will continue to be a growth driver and it's tied obviously to the expansion rate, which as you saw came in really healthy this quarter. I think you should assume that the power of the platform here and the real growth driver is that expansion of our customers across create and operate whether they start with create and then expand to operate or vice versa. And we continue to see this behavior into Q3.
Appreciate it. Thanks, guys.
Okay. Now Mario, if you're around. Mario? Great. Thanks, man.
Great. Congrats on the quarter, and thanks for taking the questions. So the first one is on gaming. So Unity, we all know you guys are pretty strong within mobile and more casual titles like Among Us and Fall Guys, with those two titles reaching the top of the Twitch charts in recent months. With that being said, the next gen titles, the PS5 launched today, the Xbox launched 2 days ago.
So can you frame what your thoughts are around the next gen console, whether Unity is better positioned within gaming within this cycle compared to the last?
So, yes, last cycle, if you broke the market down into Xbox, Nintendo and Sony's platform, our respective market shares were in 30 to 40 on Sony and Microsoft and about 70 on Nintendo in terms of the content that was built for the platform. If you further added a dimension to the market share graph and said split out the AAA from the AA, split out the network titles or the live titles from the stuff that has its own television budget in terms of marketing. So splitting out the titles we know. Of those titles, the AAA that you know, the Grand Theft Auto's of the world, the Assassin's Creed, Battlefield, FIFA, Call of Duty, these titles that totally dominate the charts on console. The vast majority of them, 90% or so are built on 1st party or in this case, 3rd party tech bidding.
It's the game engine from Activision, the game engine from Take 2, the game engine from Ubisoft or Electronic Arts. So against that backdrop, neither our competitor Epic with Unreal, nor we have a material business on the AAA end. And they were ahead of us in this cycle, probably 3x our position, and neither of them in double digits. And so, we're both rounding errors than AAA, but they were bigger rounding error than we are. We've been working with Sony and Microsoft for more than 2 years on this generation.
We're working with we don't have attribution rights for all of this because some of the stuff isn't announced. But on the Xbox Series X and S, 7 of the titles that were announced as slate titles were built in Unity. On the PlayStation side, we're not allowed to even give you the number, but I can tell you that over 60 studios, you know, we're working over 60 studios to release titles for PlayStation 5. And, if you included Quest, which I'm now starting to see as the early innings of the beginnings of a AAA title, it's almost 70% to 80% of the Quest titles were made with Unity. And I think we're in position on console to gain materially in this cycle.
But I don't think it's going to be over and out. I think the cycle intellectually or emotionally is still defined by the AAA. My sense is that AAA will probably finish the cycle with the principal titles somewhere between 67 out of 10 being homegrown tech and the balance split between Unity and unreal. And while that may not sound like the most optimistic thing in the world, you wouldn't have put us in the sentence last time around. So, we are gaining on all fronts, and we expect to continue to gain on all fronts.
But when you're coming from no AAA and a good position on the AA to a much stronger position on AA and the beginnings of a meaningful position on AAA, that's good progress.
Got it. That's very helpful. And then just have a follow-up on the Q4 guide. So I believe on the high end, on revenue, it's guiding for 9% sequential growth versus 20% historically in the Q4. So I think, Kim, you mentioned this in your prepared remarks that player engagement is expected to fall a bit in the Q4, and there might have been a pull forward of demand.
But I guess, when you consider the 2nd wave of COVID potentially in the West, why do you think that would be the case? Is there anything else embedded in there? And then any additional color you can provide on the 4th Q guidance by segment? Thank you.
Yes. John, let me take that one. So a couple of things at play. So first, when you look at Q3 to Q4, Q3 was one of our strongest quarters, so it's a bit of a tough compare. And what you noted is slightly off, but important to understand, which is that we don't expect user engagement to decline.
But normally we would be projecting a very strong seasonal uptick within operate because of end user engagement. And as John noted in his I think in an earlier question actually, users are already at home and so they're already engaged at levels we've never seen before. And so our projections for Q4 are assuming that is that normal seasonal holiday uptick has already happened. They are already at levels of engagement that would normally be a seasonal increase. And so that's what we baked into our Q4 guidance.
The other thing to keep in mind is that we're in the middle of a it's built in our guidance, reasonably so as best we can guesstimate and estimate. Console cycles when they first hit, are often very additive to the industry as a whole. And they often take the same the heavy spender in mobile is also a console user. And so we'll probably see some shift on hours of gaming play or game consumption towards consoles this quarter. If they can get them, I mean, I still don't have a PlayStation 5.
I got my Xbox. My PlayStation is in theory on the way. My R and D team gets them first. But, you know, these are these are really well articulated and really smart launches from Sony and Microsoft. But I think they've done an amazing job of learning from cycles fast.
I've never seen launch flights this strong. And so, I mean, I remember PlayStation 2 where you had pretty much a, you know, a fireworks simulator and nothing else to do. You bought it for because it looked good under the TV. You know, where we are right now, I think they've pulled out all the stops or brilliant launches. In the fullness of time, we'll benefit from that because of our larger position there.
But very near term, I expect there to be the noise around the cycle the noise around this holiday is likely to be AAA and console.
Got it. Thank you, both.
Thanks very much. Andrew Erkowitz at Oppenheimer, are you on?
Yeah. Hey, thank you. John, if you have a 30.80, I'll trade you a 30.80 from my PlayStation. I can't find those anywhere.
And I got a better I I I if I don't have a better contact for that, I would be embarrassed. But I'm not going to a retail store. I mean, who would have a chance? I mean, we're going around all day.
Just my question was, you obviously there were several big games this last quarter using build on Unity. But oddly, I found strange that some of them weren't using all of your operate tools. I was just kind of curious why, you know, somebody would use your create tool, make a live service game and not use like Unity, VBox or some of your other operate tools?
I mean, I wish it were the way you imagine it and it will be the way you imagine it in time. So the life in a game development studio, how do I describe this? There are different chiefs responsible for virtually every one of the decisions today around hosting, voice, analytics, game development, whether you plug in special tools for to augment a piece of a game engine. And those Chiefs in terms of the titles that are being introduced now made their decision on game engine and hosting probably 2 years ago. So the strength of our push to get people to buy against the full platform is a lagging indicator of how well we're doing when you look at the titles that are being released today.
So I would argue that what we're getting in terms of the cross sell on the titles released today is less than we're getting on what we're selling now for titles that will come in the future. So I see the progress. And of course, 2 years ago, we didn't have both of these other services. And so, the answer to your question is we're gaining, but the gain is on something you can't see. Sure.
And that's frustrating to me, but it doesn't go faster. Now, there are some things that we're going to do that I think will give you a better understanding of why I have confidence in that working. So using by way of example, our hosting service, our hosting service for no product released in the market today has ever been achieved as a consequence of building the game in Unity, signing up for hosting and launching the game on Unity's back end. That hasn't happened once yet. We're in the same shop, we sell them and they buy our hosting service.
We're starting to get sales on just that model now. A big part of our articulated and public roadmap is networking code. And we have a very rich strategy around networking that I will not dive into today. But trust me, it is a very complex subject. That networking code is the bane of most game development studios.
It is hard. It is irritating. They all build it custom with a rambling set of tools available from a variety of suppliers. That'll be a push button in the editor and for many use cases in the 2021 timeframe. That push button will make it incredibly easy for testing 1, 2, 5, 10, 15 people on your team using multi play hosting.
By the time anyone sees, you know, an AWS or GCP or whoever else we might be competing for, the back end on that particular game. By the time, you know, they're aware of this game exists, they've already been running on Unity for a long time. And so, we have a lot of advantages coming from our position on the editor and being able to pull them together in one service And that's exactly what we're doing is we're setting up an end to end service to support our customers because we think we can do it better than a sicatto set of solutions that they might pick 1 at a time from different chiefs on different teams. So, thank you for thinking of us as the platform that we are, but have yet to prove as much as I know we can and will in the coming years.
And I guess my follow-up question, because I appreciate the idea of everybody's creator. And so as I think about games in society, I think metaverse is how what's the monetization opportunity there? Is it just on the create side? Is it on operators on both? How should we think about the future of platforms?
Well, so you mentioned metaverses. I'm just going to start by putting a little pin in that. The I'm a giant believer in the metaverse. I'm also a giant believer that's already here. Today, I played a couple of games.
I read the news about the political environment. I read a lot of some news that's going on in some of our markets around the world. I communicated on Zoom, Slack, email. I got WhatsApp notices from notes from a bunch of my folks in Asia. I made a cell phone call and I visited a couple of dozen websites.
I'm already in the middle of the metaverse. What's going to change in years to come is that metaverse will be increasingly real time three d. And I saw some of Unity's feature roadmap products for showing exactly how your metaverse can collide with my metaverse in an environment that I think will yield the answer to your question, which I will now finally give you. The answer to that question is, where we're going to generate revenue. We have a lot of growth on seats in ties to teams that are building in Unity.
The opportunity is born of the fact that in a typical team, if it has a couple of 100 people, we might have 70 seats. And we have the opportunity to grow with that team up to 200 seats and our press there as we get network engineers, we don't have with our networking code, we get artists as we put out more on the side of visual scripting. Our collaborate software will encourage people to get to 100% of their seats on unity and those teams are growing and then there's the other half of the teams we don't have. And so there's a lot in seats. We're also creating something on a not going to take a ton of time to dive into in the moment, but runtime applications built on top of Unity, think of reflect for game developers that would be incrementally sold to them for content creation.
And so we have more tools coming to support the content creators. And if we are, I don't know, a quarter penetrated or a 5th penetrated against the current opportunity that we have in a realistic achievable near term on the create side. We're a couple percent or 5% penetrated on the amalgam of all things operate. And so we expect a lot of market share growth on the operate side. Hence, my sense that we can still 10x our business in gaming.
Got it. Thank you so much, guys.
Okay. Brent Bracelin?
Good afternoon and thanks. I'm going to start actually with Kim and then a quick follow-up for John. Kim, on the create subscription revenue side, it was surprisingly strong, pretty healthy acceleration to what 46% growth. How much of the acceleration was driven to seat expansion in the gaming side of the business or some new gaming big lands or was it predominantly tied to Beyond Gaming and some new lands there? Just any color on what drove acceleration in that subscription component of the business?
Sure. So I think it's probably worth stepping back a minute and remembering that on the Create side, we did have a modest impact. We had COVID headwinds modestly in Q1, starting in Q1 in Asia and then falling into Q2. And so when we look when we go from Q1 to Q2, you see an improvement, and some of that also was as we added finger food to our portfolio and that helped to drive growth within verticals. And then as you go from Q2 to Q3, we really saw recovery.
And to answer your question, it was both. It was both gaming and new verticals. We just saw this sort of slowdown in Q1 and Q2 across the board where larger, more complex deals were slower to close. And particularly on the gaming side, there was an adjustment as developers had to figure out how they get all these pretty high performance machines into their homes. And there was a period there where developers were a bit adjusting to the COVID world.
But in Q by the time we get to Q3, we really saw the recovery in seat growth in our pipeline and that applies to both gaming and new verticals. I think also the products that John mentioned, we had 2 releases of Reflect in the quarter, so that helps on the vertical side, and we're going to continue to be rolling out these apps to drive the growth in vertical. But very specifically, to answer your question, it really is across the board that we see the growth the acceleration in growth in Q3.
Good to hear. Is this the new normal? And do you think this is just a bit of a catch up to or a little too early to say?
Well, I think we believe we will continue to have strong growth. So I'm not sure exactly how to answer that question, but it some of it is, yes, catching up from maybe delays that we had in Q1 and Q2, but it's also continued strength, and for all the reasons that John actually just spoke about on the gaming side as we build out across teams, new use cases, artists, networking code, and then on the vertical side as we continue to expand across different verticals, adding new customers and developing these products, these applications that are really helping to drive the growth in verticals.
Just to build on that just a little bit, what Piv and I always like to articulate is, we see long term strong growth. Sometimes in our business, it's a little tougher to tell you what's going to happen next quarter, not this coming next quarter, that's easy, but 3 quarters out exactly. And part of the issue is when your business has got as much opportunity as we are, we've never guided you to think of us, I know we haven't been guiding you that long, but to think of us as being incredibly predictable. We've got some aspects of our business will move a little they continue to expand, but we a lot of new product growth driven and we expect that to carry us forward in long term. Super robust growth long term, challenging to tell you exactly the nuance of it day to day.
That's helpful. John, just quick follow-up here. My Xbox did arrive yesterday as well too, but I'm doubtful that my 10 year old is going to hop off his Minecraft and Roblox and now this new Among Us app that's very popular with his friends. My question has to do with downloads. 3,000,000,000 monthly application downloads, I think in June.
Now you're talking about 5,000,000,000 application downloads in September. That suggests downloads are accelerating faster than revenue. And I think you touched on this a little bit before, but how should we think about app download momentum? Is that a leading indicator that we're seeding the market with future long tail opportunity to monetize and now it's on you to figure out how to monetize it. Just help us understand that acceleration and downloads that we're seeing that's growing faster than revenue and the opportunity to monetize it long term.
So first, I'm going to address your children, if you don't mind. So I can remember wandering around Disneyland with my daughters when they were in, you know, the end of elementary school, and they could recognize all the characters and from seemingly a 1000 yard spot of princess and name them, to and they could sing the song of all the princess movies. That's not who they are today. They graduated from that. And I believe if your kids are engaging in the side of Minecraft and Roblox that has them engaging in content creation, they are exactly my future consumer.
They will want to graduate to something that is not as complex as the current Unity editor, but take a look at what we've done with Lego, take a look at what we've done with Reflect. These are a handful of buttons when you're a content creator. And, my sense is there is something there, something sizable there. So you don't have to agree with me, that's not my forecast. So we can debate whether it's there or not.
But I have high confidence that it is there and that we will tap into it in the in the years to come. There will be a point that they want to graduate and move on to things that are more powerful, more capable and less childlike. Your question about the 5,000,000,000 downloads, in as much as that may be a shocking number, that's the average this year. So we've seen some sharp increases. I think a lot of that is COVID related.
People have been downloading more applications and discarding more applications. We haven't seen as much growth in monthly traffic as we've seen in the number of downloads. So my sense is a big chunk of that is an indication that users are trying more things. I think that's good. It's a reasonably healthy indicator.
It's also a really great indicator for Unity, but no one's really getting into our space or in our grill. It's just frankly a stunning number. It dwarfs even the mega caps in terms of how much their their applications are downloaded on a monthly basis. So we're sort of in a league on our own in terms of, how much our ecosystem is being planted. The problem is it's not valuable if it's planted 15 times on your phone.
It doesn't get incrementally that much more valuable. But it's just an indication that, from a market share perspective, if you define it as the principal games being downloaded on a global basis, there's really nothing out there like Unity.
Thank you.
And last but not least, Tom Roderick.
Thanks, Danny. All right. Hi, John. Hi, Kim.
Great to
see you. Great to hear from you. And Richard, if no one else is going to say it, I'll be the one. The gaming chair is electric. Just Do you like that?
Yeah. Your earnings calls would have been more comfortable. Well done. John, I wanted to just briefly sort of address the commercial side of create. Really, I know Informa is very early, but I think it's an excellent sort of use case add on that kind of creates yet another element of what 3 d brings to the table.
Automotive has been a great early starter for you guys on the commercial side and would love to just hear a little bit more about how the e commerce shopping angle of commercial might be sort of changing the use case for 3 d. I saw, of course, where Carvana is changing the nature of the game of car buying and car selling, and they're incorporating a lot of 3 d themselves. Talk a little bit about maybe it's auto, maybe it's luxury goods and how the use case might be changing as part of what's helping create to gain traction outside of gaming.
So, first off, Form a, there's a version of Form a, it's in development now. I guess, I'm putting on another new product release as I speak about this, but it is designed to augment format in another version. So to back up, it's staggering how many companies sell things to other people, Right? So and that used to be done by showing up with your briefcase in hand and or demo and or some way of brochure, some way of convincing somebody that they ought to buy something and showing them how it works and giving a better sense of its benefits. My core belief is that that's a the market of selling stuff to other people is massive and it's not going away.
And the next aspect of selling stuff to other people is I don't think we're ever going to go back to the days where all of this is done in person. And we believe Unity can be used in form a and then a companion product that will come out later to essentially make it so that you can sell by way of Zoom or through our application better than you could in person, and you can still use it in person if you want that human to human more. So I think that's just another example where Unity can replace the brochure, the 2 d demo, the video. We can replace the entire package. And I don't care if you're selling a hospital bed or a car and you want to configure it or tractor or a surfboard, presenting it in a real time three d interacting and interactive environment is better.
So, I think the opportunities there are and frankly, it's amazingly little energy on our engineering side. My engineers are great engineers, so they get a lot done efficiently. But, it's not an enormous amount of work compared to the size of the market that we see. So that's why we did form a, why we're adding to it. And the thing that some of you guys missed is like, it's also there's a back end streaming component that we get paid for as well when people build some of these things and car configurators are an example.
So it's a 2 ways to win model.
Outstanding. That's really helpful. That's great. Ken, if I go back to operate, so totally understand the angle that end user engagement is not going to accelerate next year the way that it did this year, just logically, I suppose it can't. But I'd be interested to understand how some of the add ons operate, particularly if I think about 5 box multi play, how's the adoption of some of those sort of add ons working as end user engagement goes up and as your customers sort of lean into the operate side a little bit more.
Should we think about those components of operate accelerating next year even if end user engagement does not?
Yes, so we're not giving guidance for next year, but I think absolutely we have a lot of optimism in the strength of the other parts of the operate platform. So monetization is currently the biggest, that's because it was the first, but we see really strong growth in multi play, in vVox, and there's interesting opportunities as we go into other verticals for operate solutions within verticals, and those are just really getting started. So, I would say that, yes, the correlation between end user engagement extent, in that there's an opportunity there to continue to grow the set of solutions within operate, to continue to grow our customer base, right, outside of the actual end user engagement. And that's the case for monetization as well, right? We are continuing to add new our customers continuing to use our our customers continuing to use our solutions more and more and more taking we're taking market share and then we're adding new customers.
So that those are other vectors of growth. And then importantly, continuing to build out that portfolio of products within operate.
Yeah, but we just released and we're getting some good early traction around content cloud delivery as an example. So we also continue to dimensionalize this with new services that, are in large markets. And that's another example of a large market, where we think we're competitively advantaged. But I think we're kind of out of time. Are we not close?
Yep, that's it. But thank you very much. And John, if you want to conclude, that'd be great. And we'll see you guys in 3 months.
Thanks all. It's great seeing you all.
Appreciate it. Thank you.