QS Research · Michael Burry's Scion Capital analyst template · 2006
Unity Software Inc. (U)
As of 2026-11-08 · 12/15 boxes filled from SEC filings and market data
Conclusion: PASS
Conviction medium · base case -9% · downside -15% · upside +23%
The price already capitalises the upturn: at $51.49 the given EV of $20.21B equals 9.27x TTM revenue of $2.18B (N23, N24, N10) and 504.8x EBITDA of $40.0M (N25, N14), with P/E not meaningful on -$339.9M of TTM net income (N15). Because operating income was negative in every year FY2020-FY2025 (-$479.1M in FY2025) there is no normalised earnings base to buy, only cash: TTM FCF of $606.8M, a 2.7% yield (N18, N27), exceeds TTM EBITDA by $566.8M, so that cash is largely the $429.5M D&A add-back (N13) rather than evidence of pricing power. I hold today's own 9.27x EV/Sales for all three cases (a lower multiple would be a rerate and no cited catalyst gives one) and vary revenue around the mid-cycle $1.95B: base $46.70 (-9.3%), FY2024 trough $43.78 (-15.0%), and $63.45 (+23.2%) if the guided Q4 2026 run-rate of ~$688M holds for a full year. The Q3 2026 inflection is real - the first GAAP profit since IPO at $121.6M (S29) - but it carries $24.3M of interest/other income and a $2.7M tax benefit after a $248.0M nine-month loss, and paying 9.27x sales for good news is not a deep-value entry. Pass: the price sits inside my case range and the burden is now on delivery.
Key numbers
- Share price: $51.49
- Market cap: $22.85B
- Latest financial period: TTM to Sep 30, 2026
- Revenue (TTM): $2.18B
- EV / EBITDA (TTM): 504.8x
- Price / book: 7.03x
The 15 boxes
- ✓ 1. Long-form business notes
Unity sells two product sets to one developer base: Create (the real-time 3D engine, editor, animation/audio/networking tools, AI content tools and cloud services) and Grow (ad mediation, the Unity Ad Network/Vector, offerwall, Supersonic publishing, Aura) — the FY2020 10-K called the second set Operate Solutions and priced Create as monthly subscriptions and Operate on revenue share/usage. Revenue compounded from $380.8M (FY2018) to $772.4M (FY2020) and $2.19B (FY2023), then fell to $1.81B (FY2024) and only recovered to $1.85B (FY2025), so the cycle is a top-line rollover with a partial bounce. The company is still loss-making on GAAP operating lines ($479.1M operating loss in FY2025), but that loss is dominated by acquisition amortization ($418.7M of $460.9M D&A) while operating cash flow rose every year from FY2022 to $423.0M in FY2025 against $19.0M of capex. Diluted shares went from 169.97M (FY2020) to 420.91M (FY2025) with no buybacks since FY2023.
- ✓ 2. Competitive advantage
Unity's claimed moat is breadth ('point solutions that represent a subset of the offerings on our platform') and creator-community scale, not financial returns: operating income was negative in every year from FY2020 to FY2025 (worst -$882.2M in FY2022, -$479.1M in FY2025) and net income was negative in all six. The one positive number, operating cash flow of $423.0M in FY2025, sits against a $479.1M operating loss and is bridged mostly by $418.7M of intangible amortization, so it is not evidence of pricing power. It competes with Unreal, Godot and Cocos2d-x in Create and with Amazon, Meta, Google, Microsoft and Tencent (also partners/customers) plus AppLovin, Voodoo, Moloco and Digital Turbine in Grow, and its own risk factors flag AI-driven erosion of paid seat licenses.
- ✓ 3. 10-Q takeaways
Q3 2026 revenue was $622.1M, up 32% YoY, with strategic revenue $596.6M (+59%) and non-strategic $25.5M (-73%); Grow Solutions led at $457.0M. GAAP gross margin was 82% and operating income $100.6M, while GAAP net income $121.6M included a $4.5M Supersonic sale gain, $24.3M interest/other income and a $2.7M tax benefit; nine months to Sep 2026 still had a $248.0M net loss. Q3 operating cash flow was $224.0M and FCF $220M, cash was $2.646B, and Q4 2026 guidance is numeric: strategic revenue $683-691M and adjusted EBITDA $290-295M. The 10-Q risk section points back to the 10-K/prior 10-Qs; the computed 10-K diff flags 50 new-or-rewritten risk paragraphs, not a Q3 2026 10-Q change.
- ✓ 4. Corporate governance
Filled; members read this box.
- ✓ 5. Overview of the prior 3 years of 8-K filings
Filled; members read this box.
- ✓ 6. Other significant filings
Filled; members read this box.
- ✓ 7. Chronology of significant news and events
Filled; members read this box.
- ✓ 8. Comparables valuation interpretation
Filled; members read this box.
- ✓ 9. Insider trading interpretation
Filled; members read this box.
- ○ 10. Earnings-call notes
- ○ 11. Impression of the shareholder letter
- ○ 12. Scuttlebutt overview
- ✓ 13. Valuation and risk/reward summary
Filled; members read this box.
- ✓ 14. Current price suppression and potential catalysts
Filled; members read this box.
- ✓ 15. Conclusions
The call above.
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