Unity x IronSource: a smart deal, or “two drunks holding each other up”?

 

Let’s forget the “fucking idiots” saga for a moment and get down to business: what are analysts and industry watchers saying about the Unity and IronSource deal?

There’s cautious optimism for some, but also some concerning detail being pulled out of the announcement – particularly if you work at IronSource.

“This is the epitome of two drunks holding each other up,” says Gossamer Consulting’s Eric Kress on the Deconstructor of Fun podcast. Kress paints a bleak picture for Unity/IronSource as Apple’s ATT policies continue to make life difficult for mobile game companies.

He describes the combined companies’ target of $1bn profit by fiscal 2025 as “impossible” to achieve, and also predicts that the $300m both companies foresee in synergies simply means $300m off the wage bill. Most of those layoffs will come from the IronSource side of the new company, says Kress.

“This is actually going to be a disaster,” says Kress. “And I am so sorry that all these people at IronSource are going to lose their jobs – $300 million of synergies? Do you know how many fucking people that is? That’s insane,” he says. 

“Given all these challenges ahead, they’re probably in some ways better off together in this ‘two drunks holding each other up’ kind of idea – it’s better than them falling on their ass individually, right? Unity obviously gets more scale, they get more engineers, it helps them tackle this almost impossible situation created by Apple.”

Unity’s stock price peaked at $201 back in November 2021, but now finds itself trading around $33.

Over on Mobile Dev Memo, Eric Seufert is rather more positive, suggesting that the merger will “produce a whole that is greater than the sum of its parts”. The merged company could add value for mobile game developers through enhanced live ops support and monetisation efficiency, he says.

This deal also shows Unity focusing on profitability again after paying $1.65bn for graphics and VFX firm Weta Digital. Seufert says that the Weta buy “supports a high-minded vision of Unity becoming a metaverse engine or cinematic production tool but ignores the more pedestrian, immediate needs of mobile game developers and advertisers,” he says.

“IronSource, by contrast, has executed a spate of more directly relevant acquisitions [Tapjoy, Luna Labs, Soomla] that integrate seamlessly within its existing feature set.”

IronSource’s stock has also had a rocky ride, peaking at $12 in September and November before dropping to just $2 before the Unity deal was announced. It’s now over $3.

Over at Barron’s, Tae Kim is also pretty lukewarm on Unity’s strategy, and, like Seufert, picks out the Weta Digital deal as a sign that Unity had lost its way.

“So far, Unity has offered little evidence to show that the Weta deal is paying off,” says Kim. “So it isn’t a surprise that investors are skeptical about Unity’s latest billion-dollar-plus deal and whether it can properly integrate the companies.”

Kim also questions Unity CEO Riccitiello’s record on acquisitions during his time at EA, citing big-money moves for The9, Playfish, PopCap and Pandemic, all of which had mixed results.

“Riccitiello made numerous deals during his tenure there that didn’t work out,” says Kim. “EA’s stock also fell by more than 60% during his time as CEO.”

Unity CEO John Riccitiello’s track record on acquisitions is under the microscope. Photo: David Paul Morris/Bloomberg

And let’s leave the final word to the folks at Naavik, who conclude their analysis thus:

“The merger solidifies both companies’ leading positions on iOS in the post-IDFA world. In theory, Unity and IronSource can create a single platform, which will combine best practices, and improve the user experience and campaigns’ efficiency.”

“However, both companies are currently relying on Apple fingerprinting – if Apple shuts it down, this might turn out to be a big obstacle (which they’re likely hedging against). Considering also that there is a decent risk of described synergies not working at all, the deal might at the very least be a solid way to optimise the costs, combine the strengths, and survive the upcoming economic turmoil.”