QS Research · Michael Burry's Scion Capital analyst template · 2006
Unity Software Inc. (U)
As of 2026-11-06 · 12/15 boxes filled from SEC filings and market data
Conclusion: SHORT
Conviction high · base case -58% · downside -73% · upside -29%
The market is paying 9.44x TTM EV/Sales (N23) for a company whose FY2023-FY2025 normalized revenue is $1.95B, normalized EBIT is -$689.0M and normalized FCF is $289.6M, versus TTM revenue $2.18B, EBIT -$389.5M and FCF $606.8M (S2, N10, N12, N17); because normalized operating earnings are negative, EV/Sales is the only supportable anchor. I keep section 13's $1.95B normalized revenue base, even though TTM revenue is $2.18B, because the cycle includes the -17% FY2024 revenue drop. At the 3.72x ADBE peer multiple, EV is $7.25B; adding $2.65B cash and deducting $0.08B leases gives equity of $9.82B, or -57.7% versus the $23.23B market cap (S1, N8, N19, N20). The downside at 1.86x OPRA is $6.20B equity (-73.3%) and the upside at 7.14x ADSK is $16.49B (-29.0%) (S1). Q3 2026's first GAAP profit, $622.1M revenue and $257M adjusted EBITDA are real, but the stock already capitalizes the turnaround; this is a short under the rule, with high conviction because base, downside and upside all sit below today's price.
Key numbers
- Share price: $52.33
- Market cap: $23.23B
- Latest financial period: TTM to Sep 30, 2026
- Revenue (TTM): $2.18B
- EV / EBITDA (TTM): 514.1x
- Price / book: 7.15x
The 15 boxes
- ✓ 1. Long-form business notes
Unity makes money through two complementary solution sets: Create Solutions (tools/services to build, ship and run real-time 2D/3D content) and, in the latest 10-K, Grow Solutions (primarily ads/mediation/publishing). The FY2020 10-K called the second set Operate Solutions and priced it primarily through revenue-share and usage-based models, while Create was primarily monthly subscriptions. Revenue scaled from $380.8M FY2018 to $2.19B FY2023, fell to $1.81B FY2024 and was $1.85B FY2025; operating income stayed negative every year, but operating cash flow turned positive in FY2023 and reached $423.0M FY2025.
- ✓ 2. Competitive advantage
The financials show a wide gross margin but no durable competitive advantage in the returns: gross profit was $1.37B on $1.85B of FY2025 revenue (about 74%), yet operating income was -$479.1M in FY2025 and negative in every year FY2020 through FY2025, with net income also negative every year. Revenue peaked at $2.19B in FY2023, fell to $1.81B in FY2024 and was $1.85B in FY2025, so scale has not bought stable growth. The only explicit advantage the 10-K claims is the scale of its creator community, which it never quantifies, while it names Unreal (Epic), Godot, Cocos2d-x and in-house studio engines in Create and Amazon, Meta, Google, Microsoft, Tencent, AppLovin, Voodoo, Moloco and Digital Turbine in Grow. What is demonstrably real is cash generation: operating cash flow of $423.0M in FY2025 against capex of $19.0M, with D&A of $460.9M absorbing most of the operating loss.
- ✓ 3. 10-Q takeaways
Q3 2026 (quarter ended 2026-09-30) is the first clean growth quarter: revenue $622.1M vs $470.6M in Q3 2025, driven by Grow Solutions $457.0M vs $318.3M on Unity Ads Network/Unity Vector, and GAAP operating income turned to $100.6M from a $(125.9)M loss. Gross margin 82% GAAP / 85% adjusted in Q3, with $2.6B cash at 9/30/2026 and nine-month free cash flow of $488.1M vs $285.2M. The nine-month picture is still an operating loss of $(283.0)M and net loss of $(248.0)M because of $279M of Q1 2026 impairments tied to the ironSource Ads Network sunset and Supersonic sale; strip those and the operating result is roughly break-even. No quantitative guidance, no buyback, and no new specific risk factors were disclosed in this 10-Q.
- ✓ 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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