U - Unity: All Talk No Progress

2024-06-27 09:43:36 ET

Summary

• Unity's monetization business continues to struggle, with falling revenue and large losses on the back of excessive stock-based compensation.
• Market conditions aren't helping, but Unity's problems are primarily self-inflected, and the company's failure to address its problems doesn't inspire confidence.
• While Unity's valuation could eventually result in significant upside, this is likely a long way off.
• In the short-term, downside risk remains elevated due to Unity's lack of growth and the ongoing dilution of existing shareholders.

Unity ( U ) has put considerable effort into turning around its business over the past few years to little avail. Management remains optimistic but investors have been fed largely the same message for several years now. Outside of the ironSource acquisition, revenue has been fairly flat, and while Unity has positive cash flows, losses remain large on the back of excessive stock-based compensation. Unity's game engine provides it with a solid competitive position and a large end market. Revenue primarily comes from advertising though, and this part of the business is struggling. Unity's market capitalization could prove low if the company can turn around its monetization business, but it is difficult to see this happening given ongoing struggles....

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