Unity Software (NYSE:U) 2025 Conference November 19, 2025 04:00 AM ET Speaker1Hey, everybody.Speaker0Hello.Speaker1Hello, there.Speaker0Ooh. Can you expect an applause?Speaker1Yeah. Quite a muted applause, but it's fine. It's no problem. Welcome, everybody, to the pre-show. Don't worry, you're in the right place. Obviously, all of you are in the right place, but if you're watching us on the live stream, you're in the right place too. Hi, Aurora Demopolis.Speaker0Hi, Will Goldstone. How's it going today?Spea ...

Core Viewpoint - Unity Software's stock has rebounded approximately 88% year to date, with the second quarter being described as an "inflection point" for the company's turnaround by CEO Matt Bromberg, indicating potential for further growth not yet reflected in the stock's valuation [1]. Group 1: Business Overview - Unity Software sells subscriptions for its game development software, with a significant portion of its business focused on the Grow segment, which is expected to drive revenue through Unity Vector, an AI-powered product aimed at helping game developers target and retain players [2]. - The company has a competitive advantage due to billions of users engaging with apps supported by its software, which enhances the targeting capabilities of Vector AI, thereby improving ad spending returns for game developers and generating revenue for Unity [3]. Group 2: Financial Performance and Projections - Analysts project Unity's total revenue to grow by only 1% this year, but anticipate a significant acceleration to 12% growth next year, with revenues exceeding $2 billion [6]. - Free cash flow is expected to grow at an annual rate of 25%, reaching $889 million by 2029, indicating an improvement in profitability that could benefit long-term investors [6]. Group 3: Market Data - Unity Software's current market capitalization stands at $18 billion, with a current stock price of $41.44, and a gross margin of 70.53% [4][5].

Financial Data and Key Metrics Changes - In Q3 2025, Unity reported a sequential revenue increase of 11% in the Grow segment, reaching $318 million, and a year-over-year increase of 6% [18] - The Create segment generated $152 million in revenue, up 3% year over year, with a 13% increase when excluding non-strategic revenue [19] - Adjusted EBITDA for the quarter was $109 million, representing a 23% margin, an improvement of 200 basis points year over year [20] - Free cash flow reached a record $151 million, an increase of $36 million year over year [20] - The company has a strong balance sheet with cash of $1.9 billion and convertible debt of $2.2 billion [21] Business Line Data and Key Metrics Changes - The Grow segment's revenue growth was driven by the performance of Vector AI, which enhanced the Unity ad network [18] - The Create segment's growth was attributed to improvements in subscription revenue and ARPU, particularly in China [19] Market Data and Key Metrics Changes - China has become a significant market for Unity, with revenue from the region increasing from 15% to 20% of total revenue over the past year [99] - The gaming market in China is the largest globally, and Unity's technology is compatible with all major Chinese platforms [97] Company Strategy and Development Direction - Unity aims to democratize game development, enabling not just software developers but also regular content creators to build interactive experiences [60] - The company is focusing on advancements in AI to enhance content creation efficiency and engagement [9][60] - Unity is expanding into cross-platform commerce with Unity IAP, allowing developers to manage global commerce from a single dashboard [13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the sustainable growth trajectory of the business, particularly with the ongoing improvements in Vector AI and the overall mobile gaming advertising spend [27] - The company anticipates continued strong performance in both the Grow and Create segments, with guidance for Q4 revenues between $480 million and $490 million [21] Other Important Information - Unity has rolled out the Developer Data Framework, which has seen over 90% adoption in new projects built with Unity 6.2 [12] - The company is actively pursuing partnerships with payment providers to enhance its commerce capabilities [13] Q&A Session Summary Question: Drivers of faster revenue growth in the Grow segment - Management highlighted that Vector AI's scalability and performance improvements were key drivers, allowing for better ad targeting and broader customer reach [27] Question: Impact of the Developer Data Framework in 2026 - Management indicated that the runtime data would provide a long-term growth opportunity, enhancing the capabilities of Vector AI over time [29][30] Question: Guidance for Grow segment and expected sequential slowdown - Management explained that the guidance reflects seasonality and the current run rate, but they remain optimistic about continued growth [34][36] Question: Improvements in non-Vector Grow business - Management noted plans to leverage learnings from Vector to enhance other ad businesses, with early positive results observed [40][41] Question: Unity In-App Payments initiative - Management emphasized the opportunity for developers to manage cross-platform commerce, which could lead to increased profitability and growth [45][46] Question: Performance of Vector and strategy for e-commerce - Management expressed optimism about the potential for Vector in non-gaming advertising and the launch of the Audience Hub to help brands reach new audiences [79][81] Question: Momentum in China and unique aspects of the ecosystem - Management highlighted Unity's strong position in China, with significant revenue growth and compatibility with local platforms [97][99]

Core Insights - The technology sector, particularly companies like AMD and Unity Software, is poised for growth driven by artificial intelligence (AI) advancements and infrastructure spending [2][4]. Group 1: Advanced Micro Devices (AMD) - AMD has a diversified portfolio of chips catering to data centers, gaming consoles, PCs, and AI workloads, with a stock increase of 90% in 2025 [4]. - The company is well-positioned to capture growth in the data center market, with major AI companies like Microsoft and Tesla utilizing its chips [4][6]. - Analysts project AMD's earnings to increase by 59% next year, supported by its new Instinct GPUs for data centers [6][4]. Group 2: Unity Software - Unity Software powers about 70% of the top mobile games, indicating its strong market presence in game design [7]. - The company is leveraging valuable user data to enhance its AI-powered advertising tool, Unity Vector, which has improved user acquisition by 15% to 20% [9][10]. - Analysts expect Unity to return to double-digit percentage growth in 2026 after a period of flat revenue performance [10].

Core Insights - The article highlights three companies that are expected to grow significantly in the long term despite being undervalued in the current market environment Group 1: Unity Software - Unity Software is experiencing a return to strong growth after a period of stagnation, with shares still 82% below their previous peak [2][3] - The company is a leading provider of software for video game developers, particularly in mobile gaming, and its AI-powered advertising platform, Unity Vector, is driving growth in its ad network [3][4] - Unity reported a slight year-over-year decline in total revenue in Q2 but is expected to return to growth by 2026, with free cash flow projected to grow at an annualized rate of 25% [3][6] - The company has seen double-digit growth in subscriptions for its game development software and has expanded into non-gaming markets, including partnerships with automakers like BMW [5] Group 2: Roku - Roku's shares fell sharply in 2021 due to a slowdown in the advertising market but have since rebounded, although they still trade 80% below their all-time high [7][8] - The company has a strong competitive position in the streaming market, with nearly 90 million user accounts as of the end of 2024, representing a 12% increase from Q4 2023 [9] - Roku's platform revenue grew 18% year-over-year in Q2 2025, driven by a large and growing audience, and the connected-TV advertising market is expected to grow from $29 billion in 2024 to $38 billion in 2027 [10] Group 3: Fiverr International - Fiverr International's shares are trading 93% below their previous high, yet the company continues to increase free cash flow and focus on AI initiatives [12] - Despite economic volatility affecting the gig economy, Fiverr reported a 15% year-over-year revenue increase in Q2, with strong demand for AI-related services, particularly a 37% increase in demand for AI consultants [13][14] - The recent launch of its AI-powered Shopify Store Builder contributed to an 84% year-over-year increase in services revenue, and the stock is trading at a low price-to-free cash flow multiple of 9, indicating a potential bargain for investors [15][16]

Core Insights - Unity's shares have fallen over 80% since late 2022, with a 17% revenue drop in 2024 due to poor decisions, including the acquisition of ironSource and the cancellation of developer fees [1][2] Group 1: Company Restructuring - Unity initiated a "reset" in early 2024 by exiting non-core businesses, laying off a significant portion of its workforce, and appointing Matthew Bromberg as the new CEO [2] - The company has canceled the controversial Runtime Fee that charged developers for game installs, which had raised concerns about the viability of free-to-play games [4] Group 2: Revenue and Growth - Despite overall revenue contraction, subscription revenue for Unity Pro and Unity Enterprise is growing again following a price increase [5] - Unity's new AI-powered advertising platform, Unity Vector, has led to a 15% sequential growth in the Unity Ad Network in the second quarter, indicating a positive trend [6] Group 3: Market Position - Unity remains one of only two major commercial game engines widely used in the industry, and while trust issues persist, there has not been a significant loss of customers [5]

Core Insights - The article discusses potential growth opportunities for Texas Instruments and Unity Software, highlighting their respective strengths in the data center and gaming software markets Group 1: Texas Instruments - Texas Instruments has seen a 20% decline from its previous high, but is beginning to recover due to growth in data centers [2][4] - The company has historically maintained high margins and a competitive advantage in analog and embedded chips, with a stock increase of 355% over the last decade [3] - After nine quarters of revenue declines, Texas Instruments reported a 9% quarter-over-quarter revenue growth in Q2 [4] - Data center sales surged by about 50% due to increased investment in AI infrastructure, making it the fastest-recovering market for the company [5] - Analysts project a 10% annualized revenue growth over the next four years, with free cash flow expected to rise from $1.5 billion in 2024 to nearly $10 billion by 2029 [6] - The anticipated increase in free cash flow will support a current dividend yield of 3% and enhance shareholder returns [7] Group 2: Unity Software - Unity Software, which provides tools for game development, has seen its stock rise 62% this year but remains over 80% below its previous peak [8] - The company’s revenue of $441 million is below its previous high of $609 million in Q4 2023, but recent quarters show signs of stabilization [9] - Unity has improved efficiency and invested in AI tools, with the new AI-powered ad platform, Unity Vector, exceeding expectations [10] - Unity Vector is enhancing user engagement and in-app purchases for mobile game developers, leveraging valuable user behavior data [11] - The integration of AI with digital content creation positions Unity as a key player, with its new Unity 6 software achieving 6.6 million downloads, a 50% increase from the previous quarter [12] - Analysts forecast a 25% annualized growth in free cash flow, increasing from $286 million in 2024 to $866 million by 2029, indicating the stock is undervalued with a market cap of $15 billion [13]

Core Insights - Unity Software has experienced a stock surge of over 100% year-to-date, reaching a new 52-week high, raising questions about the sustainability of this momentum [1][2] - The company's recent performance indicates a successful strategic overhaul, delivering tangible financial results and positioning for future growth [1][3] Financial Performance - Unity reported a record-breaking free cash flow of $127 million in Q2 2025, up from $80 million in the same quarter the previous year, signaling effective operational discipline [4] - Total revenue reached $441 million, significantly exceeding the high end of the company's guidance [4] - The GAAP net loss was narrowed to $107 million, an improvement from a $126 million loss a year prior, showcasing a successful pivot towards profitability [5] AI-Driven Growth - The introduction of Unity Vector, an AI-powered advertising platform, has driven a 15% sequential revenue increase within the Unity Ad Network during Q2 [7][10] - The Unity Ad Network now accounts for roughly half of the revenue from the Grow Solutions segment, indicating a high-margin business that supports future earnings expansion [9] Strategic Partnerships and Diversification - Unity is strengthening its position in the video game industry through multi-year partnerships with major companies like Tencent and Scopely, reinforcing its foundational role for game creators [12] - The company is also expanding its real-time 3D expertise into industrial applications, particularly in the automotive sector, with clients like BMW and Mercedes-Benz [13][14] - The Industries division is now the fastest-growing subscription business for Unity, providing a recurring revenue stream beyond the gaming market [15] Long-Term Growth Outlook - Unity has transitioned from a growth-at-all-costs strategy to a disciplined approach that generates significant cash flow [16][17] - The combination of a validated AI platform, high-margin revenue growth, and a clear long-term vision positions Unity for continued success [17]

Core Thesis - Unity Software Inc. is undergoing a significant transformation under new leadership, with a focus on operational efficiency and sustainable returns, marking Q2 2025 as a pivotal inflection point in its recovery journey [2][5][6] Financial Performance - Unity reported a net loss of $921 million in 2022, but has since reduced GAAP net losses to $107 million, while achieving a free cash flow increase of 59% to $127 million [2][5] - The company holds a cash position of $1.7 billion, providing financial stability as it navigates its turnaround strategy [5] Business Segments - Unity operates through two main segments: Create Solutions, which is its game engine platform, and Grow Solutions, a monetization network enhanced by the $4.4 billion acquisition of ironSource [3] - The integration of these segments has faced challenges in the past, but the new strategy aims to leverage AI for optimizing both development and monetization [3] Strategic Initiatives - The company has undergone a necessary reset, including layoffs and the exit from non-core business units, which has allowed it to focus on its profitable core [4] - Unity's subscription-based model positions it favorably in mobile and indie game development, providing predictable recurring revenue [4] Market Position - Unity holds over 70% market share in mobile gaming, and its strategic refocus under new leadership aims to expand into industries such as automotive and architecture [6] - The launch of Unity Vector in early 2025 is expected to increase ad network revenue by 15% sequentially, serving as a catalyst for monetization growth [3][6]

Core Insights - Unity Software Inc. reported a strong second-quarter performance for 2025, driven by the launch of its AI-powered ad platform, Unity Vector, which contributed to a 15% sequential growth in the Unity Ad Network [1][9] - The company anticipates continued double-digit sequential growth in the third quarter, alongside stabilization in other ad products, indicating a positive outlook for the broader Grow segment [1][3] Financial Performance - Unity's second-quarter revenue reached $440.9 million, reflecting a year-over-year decline of 1.9% but surpassing estimates, while adjusted EBITDA was $90 million, representing a 21% margin [3] - The company is leveraging efficiency gains to reinvest aggressively in Vector and AI content creation without compromising profitability [3] Product Development and Market Position - Unity Vector's early success is attributed to its scalability and ability to process diverse data types in real time, enhancing install quality and return on ad spend for clients [2] - The platform benefits from Unity's extensive reach, powering 70% of top mobile games, which provides unique behavioral data advantages [2] Competitive Landscape - Unity is positioned in direct competition with AppLovin Corporation and Digital Turbine, both established players in mobile ad tech [5][6] - While AppLovin utilizes advanced machine learning for ad targeting, Unity's deep integration into game development offers a unique data edge [5] - Digital Turbine focuses on mobile content discovery, but Unity's first-party game runtime data may provide a stronger long-term advantage [6] Stock Performance and Valuation - Unity's stock has increased by 57.8% over the past three months, outperforming the Zacks Internet - Software industry and the Zacks Computer and Technology sector [7] - The stock currently trades at a premium with a forward 12-month price-to-sales (P/S) ratio of 7.33 compared to industry peers [11] Earnings Estimates - Unity's loss estimates for 2025 and 2026 have narrowed to a loss per share of 79 cents and 64 cents, respectively, indicating a year-over-year improvement from a loss of $1.68 per share in 2024 [14]