Unity Software (U) AI Stock Analysis

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Unity Software

(NYSE:U)

Rating:75Outperform

Price Target:

$37.00

▲(10.48%Upside)

Unity Software's stock score reflects strong technical momentum and positive earnings call outcomes, driving an optimistic outlook. Financial performance is solid with strong revenue growth and cash flow, though profitability challenges remain. Valuation is hindered by negative earnings, impacting the overall score.

Positive Factors

Financial Performance

Investor sentiment into the print has strengthened, with channel checks suggesting that Unity Vector is performing ahead of internal expectations.

Market Position

Unity maintains a strong competitive position in mobile game development and real-time 3D content, with structural advantages in cross-platform development and its full-stack toolchain.

Product Development

Early performance data showed Vector delivering 15 to 20% lifts in install volume and in-app monetization versus the prior model on iOS, with Android tracking similarly.

Negative Factors

Management Challenges

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

Market Risks

Israel remains a geopolitical risk due to its role in Grow R&D.

Valuation Concerns

Current valuation is considered unrealistic compared to established peers, with expectations for substantial revisions in Grow forecasts or evidence of Create's profitability.

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

Market Cap

$13.62B

Dividend YieldN/A

Average Volume (3M)13.55M

Price to Earnings (P/E)―

Beta (1Y)2.21

Revenue Growth-16.74%

EPS Growth49.75%

CountryUS

Employees4,987

SectorTechnology

Sector Strength92

IndustrySoftware - Application

Share Statistics

EPS (TTM)0.24

Shares Outstanding415,694,640

10 Day Avg. Volume17,420,687

30 Day Avg. Volume13,549,582

Financial Highlights & Ratios

PEG Ratio-0.82

Price to Book (P/B)3.85

Price to Sales (P/S)0.00

P/FCF Ratio40.16

Enterprise Value/Market Cap0.96

Enterprise Value/Revenue1.71

Enterprise Value/Gross Profit9.74

Enterprise Value/Ebitda-14.16

Forecast

1Y Price Target

$28.92

Price Target Upside-13.65% Downside

Rating ConsensusModerate Buy

Number of Analyst Covering14

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: 57.08%|

Next Earnings Date:Aug 06, 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 exhibits strong revenue growth and robust gross margins, indicating product strength. However, persistent operating losses and negative net margins indicate profitability challenges. The balance sheet shows a sound equity structure and moderate leverage, with notable cash flow management supporting liquidity.

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.

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
EBITDA	-234.61M	-209.35M	-663.45M	-465.53M	-231.84M
Net Income	-664.11M	-822.01M	-919.49M	-532.61M	-282.31M
Balance Sheet
Total Assets	6.74B	7.24B	7.83B	4.84B	2.67B
Cash, Cash Equivalents and Short-Term Investments	1.52B	1.59B	1.59B	1.74B	1.75B
Total Debt	2.24B	2.71B	2.71B	1.82B	123.91M
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

Positive

Last Price33.49

Price Trends

50DMA

26.51

Positive

100DMA

23.67

Positive

200DMA

23.12

Positive

Market Momentum

MACD

2.45

Positive

RSI

64.86

Neutral

STOCH

34.42

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 33.49 is above the 20-day moving average (MA) of 30.63, above the 50-day MA of 26.51, and above the 200-day MA of 23.12, indicating a bullish trend. The MACD of 2.45 indicates Positive momentum. The RSI at 64.86 is Neutral, neither overbought nor oversold. The STOCH value of 34.42 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 (51)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
U	75 Outperform	$13.62B	―	-14.15%	―	-16.74%	49.75%
CVLT	74 Outperform	$7.32B	97.42	25.23%	―	18.63%	-55.09%
SRAD	73 Outperform	$8.71B	132.26	6.40%	―	21.75%	116.24%
ESTC	69 Neutral	$9.48B	192.75	-12.98%	―	17.04%	-273.13%
GTLB	66 Neutral	$7.91B	480.34	2.53%	―	29.31%	―
TTAN	51 Neutral	$10.69B	―		―	26.08%	-62.42%
Sector *	51 Neutral	AU$1.68B	2.26	-31.66%	3.52%	16.55%	-7.79%

* Technology Sector Average

Performance Comparison

Unity Software

33.49

17.14

104.83%

CVLT

CommVault Systems

163.43

40.23

32.65%

ESTC

Elastic

88.86

-23.45

-20.88%

SRAD

Sportradar Group AG

28.00

16.96

153.62%

GTLB

Gitlab

48.38

-4.49

-8.49%

TTAN

ServiceTitan, Inc. Class A

117.95

17.95

17.95%

Unity Software Corporate Events

Executive/Board ChangesShareholder Meetings

Unity Software Stockholders Reject Executive Compensation Plan

Negative

Jun 13, 2025

On June 11, 2025, Unity Software Inc. held its Annual Meeting of Stockholders, where key decisions were made regarding the company’s governance and operations. Stockholders elected Class II directors, ratified Ernst & Young LLP as the independent accounting firm for 2025, but did not approve the executive compensation plan, indicating potential dissatisfaction with leadership remuneration strategies.

The most recent analyst rating on (U) stock is a Hold with a $16.00 price target. To see the full list of analyst forecasts on Unity Software stock, see the U Stock Forecast page.

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.Date of analysis: Jul 26, 2025