Unity Software (U) AI Stock Analysis

• Market Cap: $6.93B
• Dividend Yield: N/A
• Average Volume (3M): 11.21M
• Price to Earnings (P/E): ―
• Beta (1Y): 2.31
• Revenue Growth: -17.10%
• EPS Growth: 21.82%
• Country: US
• Employees: 4,987
• Sector: Technology
• Sector Strength: 40
• Industry: Software - Application
• EPS (TTM): -1.69
• Shares Outstanding: 409,664,520
• 10 Day Avg. Volume: 8,606,779
• 30 Day Avg. Volume: 11,211,497
• PEG Ratio: N/A
• Price to Book (P/B): N/A
• Price to Sales (P/S): 4.87
• Price to Cash Flow (P/CF): 19.70
• P/FCF Ratio: 19.70
• Enterprise Value/Market Cap: N/A
• Enterprise Value/Revenue: N/A
• Enterprise Value/Gross Profit: N/A
• Enterprise Value/Ebitda: N/A
• 1Y Price Target: $28.65
• Price Target Upside: 71.04% Upside
• Rating Consensus: Moderate Buy
• Number of Analyst Covering: 16

Unity Software's overall stock score reflects significant challenges in financial performance, particularly in revenue growth and profitability. Despite these issues, the company has a stable balance sheet and improving cash flow, which provide some resilience. Technical indicators suggest a bearish trend, although the stock may be approaching oversold levels. The earnings call provided a positive outlook with exceeded targets, but there are still concerns about the transition to the new ad model.

Positive Factors

Ad Revenue Growth

High incremental margin ad revenues can drive EBITDA and FCF growth, with potential margins of 80%+.

Mobile Advertising Market

Vector represents a significant catalyst that can drive share gains of the $100B+ mobile gaming advertising market.

New Ad Model Launch

The earlier launch of the new ad model signals positive performance and an earlier path to industry-level growth.

Negative Factors

Guidance Uncertainty

Unity provided a softer-than-expected guidance for Q1, leading to uncertainty regarding performance and prudence dynamics.

Model Transition Risks

The transition introduces execution risks, particularly as Unity phases out legacy ad models, and the ability to drive sustainable revenue growth remains uncertain.

Revenue Volatility

The transition to Unity Vector, its AI-driven ad platform, introduces execution risks and near-term revenue volatility as legacy ad models are phased out.

Unity Software Business Overview & Revenue Model

Company Description

Unity Software Inc. creates and operates an interactive real-time 3D content platform. Its platform provides software solutions to create, run, and monetize interactive, real-time 2D and 3D content for mobile phones, tablets, PCs, consoles, and augmented and virtual reality devices. The company serves content creators and developers, artists, designers, engineers, and architects to create interactive and real-time 2D and 3D content. It offers its solutions directly through its online store, field sales operations, independent distributors, and resellers in the United States, Denmark, Belgium, Canada, China, Colombia, Finland, France, Germany, Ireland, Israel, Japan, Lithuania, Portugal, Singapore, South Korea, Spain, Sweden, Switzerland, and the United Kingdom. The company was founded in 2004 and is headquartered in San Francisco, California.

How the Company Makes Money

Unity Software primarily generates revenue through a combination of subscription fees for its software offerings and usage-based fees from its cloud services. The company offers various subscription plans for its Unity Pro, Unity Enterprise, and Unity Industrial Collection, which provide access to advanced features and tools for developers. Additionally, Unity's Operate Solutions segment contributes significantly to its revenue by providing services such as Unity Ads, Unity In-App Purchases, and Unity Analytics, which help developers monetize and optimize their applications. Unity also engages in strategic partnerships and collaborations that enhance its product offerings and expand its reach into new markets, further driving revenue growth.

Unity Software Financial Statement Overview

Summary

Unity Software faces challenges in revenue growth and profitability, indicated by declining revenue and persistent losses. However, the balance sheet remains stable with manageable debt levels, and cash flow improvements suggest better liquidity management. The company needs to address operational inefficiencies to enhance profitability.

Income Statement

Unity Software shows a declining trend in revenue growth, with -17.09% from 2023 to TTM, indicating challenges in maintaining its growth trajectory. The company's gross profit margin in TTM is approximately 73.49%, which is strong, but the net profit margin is negative at -36.59%, reflecting significant losses. Persistent negative EBIT and EBITDA margins highlight ongoing operational inefficiencies.

Balance Sheet

Unity's balance sheet indicates moderate financial health with a debt-to-equity ratio of 0.70, suggesting manageable leverage. The equity ratio at 47.36% points to a balanced capital structure. However, negative return on equity of -20.80% in TTM indicates poor profitability for shareholders.

Cash Flow

The company has shown improvement in cash flow management with a significant increase in free cash flow by 60.03% from 2023 to TTM. The operating cash flow to net income ratio is 0.48, which is reasonable given the negative net income, and a positive free cash flow to net income ratio of 0.43 shows effective cash management despite losses.

Breakdown
Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Income Statement		Total Revenue
1.81B	2.19B	1.39B	1.11B	772.45M
	Gross Profit
1.33B	1.45B	948.52M	856.90M	600.10M
	EBIT
-755.15M	-762.42M	-882.21M	-531.66M	-274.81M
	EBITDA
-234.61M	-209.35M	-663.45M	-465.53M	-231.84M
	Net Income Common Stockholders
-664.11M	-822.01M	-919.49M	-532.61M	-282.31M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
1.52B	1.59B	1.59B	1.74B	1.75B
	Total Assets
6.74B	7.24B	7.83B	4.84B	2.67B
	Total Debt
2.24B	2.71B	2.71B	1.82B	123.91M
	Net Debt
721.25M	1.12B	1.22B	763.53M	-1.15B
	Total Liabilities
3.31B	3.83B	4.08B	2.45B	634.08M
	Stockholders Equity
3.19B	3.18B	3.53B	2.39B	2.04B
Cash Flow		Free Cash Flow
286.00M	178.78M	-116.57M	-153.39M	-20.99M
	Operating Cash Flow
315.55M	234.70M	-59.43M	-111.45M	19.91M
	Investing Cash Flow
-42.41M	44.04M	723.23M	-1.84B	-575.19M
	Financing Cash Flow
-338.31M	-174.01M	-226.63M	1.72B	1.70B

Unity Software Technical Analysis

• Technical Analysis Sentiment: Negative
• Last Price: 16.75
• 50DMA: Negative
• 100DMA: Negative
• 200DMA: Negative
• MACD: Positive
• RSI: Neutral
• STOCH: Positive

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For U, the sentiment is Negative. The current price of 16.75 is below the 20-day moving average (MA) of 20.46, below the 50-day MA of 22.06, and below the 200-day MA of 20.46, indicating a bearish trend. The MACD of -0.66 indicates Positive momentum. The RSI at 41.63 is Neutral, neither overbought nor oversold. The STOCH value of 18.06 is Positive, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for U.

Unity Software Peers Comparison

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
SRAD	78 Outperform	$6.09B	165.53	3.92%	―	26.10%	0.16%
CVLT	77 Outperform	$6.13B	37.31	74.05%	―	15.19%	―
ESTC	67 Neutral	$7.79B	192.75	-16.95%	―	17.95%	-345.28%
GTLB	60 Neutral	$6.74B	―	-0.20%	―	30.93%	99.45%
Sector *	57 Neutral	$18.43B	9.69	-13.94%	2.74%	5.03%	-23.61%
U	53 Neutral	$6.93B	―	-20.84%	―	-17.10%	21.82%

Unity Software Corporate Events

Unity Software Announces Board Member Resignations

On March 28, 2025, Unity Software announced the upcoming resignations of Michelle K. Lee and David Kostman from its Board of Directors, effective June 9, 2025. The company clarified that their departures were not due to any disagreements, and expressed gratitude for their contributions, indicating a smooth transition without internal conflict.

Unity Software Approves New Executive Compensation Plan

On March 4, 2025, Unity Software’s Human Capital and Compensation Committee approved performance-based restricted stock units (PSUs) for its executive officers as part of its executive compensation program. These PSUs aim to incentivize executives to meet challenging goals related to the company’s revenue and adjusted EBITDA, enhancing long-term performance and shareholder value. The PSUs cover a three-year performance period from January 1, 2025, to December 31, 2027, with specific performance goals set annually. The vesting of these PSUs is contingent on achieving these goals and continued employment, with provisions for accelerated vesting in certain circumstances, such as a change in control or the executive’s death.