Unity Software (U) AI Stock Analysis

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Unity Software

(NYSE:U)

Rating:73Outperform

Price Target:

$29.00

▲(16.75%Upside)

Unity Software's strong financial performance, particularly in revenue growth and cash flow management, combined with positive technical indicators, supports the overall score. The optimistic earnings call highlights strategic advancements and financial achievements, despite valuation challenges due to a negative P/E ratio and high debt levels.

Positive Factors

Advertising Performance

Momentum in the ads side of Unity's business is building under the leadership of Felix Thé.

Financial Performance

Unity reported results ahead of consensus, with disciplined cost control and stabilization across core segments supporting the beat.

Operational Discipline

Feedback from investors indicates encouragement on the new management team's operational discipline and renewed focus on the advertising side of the business.

Negative Factors

Competitive Risks

The company faces competitive risks in AAA development from Unreal and macro exposure in international markets, posing challenges to its market position.

Management Changes

The departure of CTO Steven Collins is a near-term speed bump for Unity's fresh management team.

Unity Software (U) vs. SPDR S&P 500 ETF (SPY)

Market Cap

$10.33B

Dividend YieldN/A

Average Volume (3M)13.53M

Price to Earnings (P/E)―

Beta (1Y)2.40

Revenue Growth-16.74%

EPS Growth49.75%

CountryUS

Employees4,987

SectorTechnology

Sector Strength82

IndustrySoftware - Application

Share Statistics

EPS (TTM)0.24

Shares Outstanding415,694,640

10 Day Avg. Volume21,337,716

30 Day Avg. Volume13,528,447

Financial Highlights & Ratios

PEG Ratio0.60

Price to Book (P/B)2.79

Price to Sales (P/S)0.00

P/FCF Ratio31.11

Enterprise Value/Market Cap2.42

Enterprise Value/Revenue3.27

Enterprise Value/Gross Profit18.64

Enterprise Value/Ebitda-27.10

Forecast

1Y Price Target

$26.65

Price Target Upside7.29% Upside

Rating ConsensusModerate Buy

Number of Analyst Covering15

Unity Software Business Overview & Revenue Model

Company DescriptionUnity 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 MoneyUnity Software generates revenue through a diversified model primarily consisting of software subscriptions, services, and revenue-sharing agreements. The company's key revenue streams include subscriptions to its Unity Pro and Unity Enterprise software, which provide access to advanced tools and features for professional developers. Additionally, Unity generates significant income through its Operate Solutions, which include monetization services such as Unity Ads and Unity In-App Purchases that allow developers to generate revenue from their applications. The company also partners with strategic technology and industry players to enhance its platform capabilities and expand its market reach.

Unity Software Key Performance Indicators (KPIs)

Any

Customers Over $100k

Customers Over $100k
Tracks the number of customers generating over $100k in revenue, indicating the company's ability to attract and retain high-value clients, which is crucial for sustained growth.

Chart InsightsUnity's customer base over $100k has stabilized after a peak in late 2022, reflecting a strategic shift towards high-margin subscription models. Despite a dip in 2023, the recent earnings call highlights Unity's success in exceeding revenue expectations and expanding its AI platform, Unity Vector, which could drive future customer growth. However, challenges remain with declines in certain revenue segments and high debt levels. The company's focus on technological advancements and diversification beyond gaming suggests potential for renewed customer acquisition momentum.

Data provided by:

Main Street Data

Unity Software Earnings Call Summary

Earnings Call Date:May 07, 2025

(Q1-2025)

% Change Since: 16.51%|

Next Earnings Date:Aug 12, 2025

Earnings Call Sentiment Positive

The earnings call reflects a positive outlook with strong performance in several key areas, including exceeding financial guidance, successful technological advancements, and expansion into new verticals. However, there are challenges such as declines in specific revenue segments and high debt levels. The sentiment remains optimistic, driven by strategic innovations and financial health.

Q1-2025 Updates

Positive Updates

Exceeded Revenue and EBITDA Guidance

Unity surpassed the top end of their guidance for both revenue and adjusted EBITDA in the first quarter, with revenue exceeding by $20 million and adjusted EBITDA by $19 million.

Successful Migration to Unity Vector

The migration of the Unity ad network to the AI platform Unity Vector was completed ahead of schedule, providing a 15% to 20% lift in installs and in-app purchase value on iOS.

Unity 6 Adoption

Unity 6 saw significant adoption with 4.4 million downloads and 43% of active users already migrated to the new version.

Growth Outside Gaming

The Unity platform experienced growth beyond gaming, with new customers like Phillips, Siemens, and Toshiba Elevator in various industry verticals.

Increased Cash Flow and Strong Balance Sheet

Free cash flow improved by $22 million year-over-year, and Unity maintains a strong balance sheet with $1.5 billion in cash.

Negative Updates

Decline in Grow and Create Revenue

Grow revenue decreased by 4% year-over-year and Create revenue declined by 8% year-over-year, attributed to a transition from low-margin professional services.

Non-Strategic Revenue Decline

A decline in non-strategic revenue is expected to impact the second quarter results, following a $17 million contribution in Q1.

Debt Levels

Unity has a debt of $2.2 billion, although mitigated by a recent $690 million convertible offering to extend maturities.

Company Guidance

In the call, Unity provided guidance for the second quarter of 2025, forecasting total revenues between $415 million and $425 million and adjusted EBITDA ranging from $70 million to $75 million. In the first quarter of 2025, Unity exceeded expectations, with revenue surpassing the high end of guidance by $20 million and adjusted EBITDA by $19 million. The company highlighted the significant progress of their new AI platform, Unity Vector, which has already shown a 15% to 20% lift in iOS installs and in-app purchases. Unity's subscription revenue in the Create segment grew double digits year-over-year, with Unity 6 achieving over 4.4 million downloads. Additionally, Unity’s transformation towards a high-margin subscription business is evident, as it now constitutes nearly 80% of Create revenue.

Unity Software Financial Statement Overview

Summary

Unity Software demonstrates robust revenue growth and strong gross margins, reflecting product strength. However, persistent operating losses and negative net margins pose challenges to profitability. The balance sheet reflects a sound equity structure, although leverage remains a consideration. Cash flow generation is a notable strength, supporting liquidity and operational flexibility.

Income Statement

Positive

Unity Software's revenue demonstrated strong growth from 2020 to 2023, with a CAGR of approximately 31%. However, the company has consistently reported negative EBIT and EBITDA, reflecting ongoing operational challenges. The TTM (Trailing-Twelve-Months) gross profit margin is robust at 74.83%, indicating strong product margins, but the net profit margin remains negative due to high operating expenses relative to revenue.

Balance Sheet

Positive

Unity maintains a relatively high debt-to-equity ratio of 0.70, indicating moderate leverage. The equity ratio stands at 47.93%, signifying a balanced financial structure. However, the negative return on equity due to consistent net losses highlights profitability challenges. The company's asset base is primarily financed through equity, suggesting financial stability despite ongoing losses.

Cash Flow

Positive

Unity's cash flow management exhibits strength, with positive operating cash flow of $335.95 million in the TTM period. Free cash flow has shown a positive trend, with a growth rate of 7.63% from 2023 to 2024. The operating cash flow to net income ratio is favorable, indicating efficient cash generation despite accounting losses.

TTM	Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Breakdown
Income Statement		Total Revenue
2.06B	1.81B	2.19B	1.39B	1.11B	772.45M
	Gross Profit
1.40B	1.33B	1.45B	948.52M	856.90M	600.10M
	EBIT
-611.25M	-755.15M	-762.42M	-882.21M	-531.66M	-274.81M
	EBITDA
-220.26M	-234.61M	-209.35M	-663.45M	-465.53M	-231.84M
	Net Income Common Stockholders
-793.47M	-664.11M	-822.01M	-919.49M	-532.61M	-282.31M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
1.59B	1.52B	1.59B	1.59B	1.74B	1.75B
	Total Assets
7.83B	6.74B	7.24B	7.83B	4.84B	2.67B
	Total Debt
2.71B	2.24B	2.71B	2.71B	1.82B	123.91M
	Net Debt
1.22B	721.25M	1.12B	1.22B	763.53M	-1.15B
	Total Liabilities
4.08B	3.31B	3.83B	4.08B	2.45B	634.08M
	Stockholders Equity
3.53B	3.19B	3.18B	3.53B	2.39B	2.04B
Cash Flow		Free Cash Flow
229.39M	286.00M	178.78M	-116.57M	-153.39M	-20.99M
	Operating Cash Flow
273.16M	315.55M	234.70M	-59.43M	-111.45M	19.91M
	Investing Cash Flow
-45.77M	-42.41M	44.04M	723.23M	-1.84B	-575.19M
	Financing Cash Flow
-593.66M	-338.31M	-174.01M	-226.63M	1.72B	1.70B

Unity Software Technical Analysis

Technical Analysis Sentiment

Positive

Last Price24.84

Price Trends

50DMA

21.54

Positive

100DMA

22.04

Positive

200DMA

21.75

Positive

Market Momentum

MACD

0.99

Positive

RSI

54.43

Neutral

STOCH

27.54

Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For U, the sentiment is Positive. The current price of 24.84 is above the 20-day moving average (MA) of 23.59, above the 50-day MA of 21.54, and above the 200-day MA of 21.75, indicating a bullish trend. The MACD of 0.99 indicates Positive momentum. The RSI at 54.43 is Neutral, neither overbought nor oversold. The STOCH value of 27.54 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for U.

Unity Software Risk Analysis

Unity Software disclosed 64 risk factors in its most recent earnings report. Unity Software reported the most risks in the "Finance & Corporate" category.

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

Latest Risks Added 0 New Risks

Unity Software Peers Comparison

Overall Rating

UnderperformOutperform

Sector (62)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
CVLT	75 Outperform	$8.26B	110.94	25.23%	―	18.63%	-55.09%
SRAD	75 Outperform	$7.53B	114.45	6.40%	―	21.75%	116.24%
U	73 Outperform	$10.33B	―	-14.15%	―	-16.74%	49.75%
GTLB	64 Neutral	$8.06B	―	2.53%	―	29.31%	―
Sector *	62 Neutral	$11.90B	10.64	-7.50%	2.90%	7.41%	-8.19%
ESTC	60 Neutral	$8.85B	192.75	-12.98%	―	17.04%	-273.13%
TTAN	47 Neutral	$9.28B	―		―	26.08%	-62.42%

* Technology Sector Average

Performance Comparison

Unity Software

24.23

6.32

35.29%

CVLT

CommVault Systems

188.29

71.89

61.76%

ESTC

Elastic

83.17

-31.47

-27.45%

SRAD

Sportradar Group AG

24.56

13.48

121.66%

GTLB

Gitlab

43.37

-2.91

-6.29%

TTAN

ServiceTitan, Inc. Class A

103.46

3.46

3.46%

Unity Software Corporate Events

Executive/Board Changes

Unity Software Announces Board Member Resignations

Neutral

Apr 2, 2025

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.

Glossary

BuyA stock rated as a "Buy" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock is likely to deliver higher returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.

HoldA stock rated as a "Hold" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly compelling nor unfavorable for investment. Note: This is not investment advice; please consult a financial advisor before making investment decisions.

SellA stock rated as a "Sell" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock may deliver lower returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.