Unity Software: Bromberg Is Driving Positive Change, But Valuations Are Questionable

Summary

• Unity which has long been a source of wealth destruction is up by 64% and outperforming other tech and Russell 1000 peers by 2-3.5x since Matthew Bromberg took over as CEO.
• Unity's turnaround is driven by new leadership, solid reductions in the cost base, better FCF, and the promising prospects of AI-powered Unity Vector and Unity 6.
• Even though Unity is staring at a better EBITDA profile over the next 2 years we are not sure it warrants a valuation multiple of 45x, which is 50% higher than APPstock.
• APP is poised to offer the same cadence of forward EBITDA growth while its EBITDA margin profile will still likely be around 3x higher than U by FY27.
• Mean-reversion players who focus on the Video game landscsape will still be enthused by U's low relative strength ratio, but the stock looks overbought in the short term.

sankai

The Temperature Has Finally Shifted

Unity Software (NYSE:U), which over the last two decades, has built a name for itself as a key facilitator of game development and immersive experiences, hadn’t been doing a great deal of good for its shareholder

Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.