The Unity Software story

What drives the business

• Unity combines Create Solutions, tools for building and running games across mobile, PC and console, with Grow Solutions, advertising products that attract players and monetize games whether or not they use Unity's engine.
• Its strategic shift centers on Unity Vector and the Unity Ads Network, following the ironSource Ads network closure effective April 30, 2026, and the Supersonic publishing business disposal on August 4, 2026.
• Strategic Grow Revenue increased 63% year over year in the quarter to June 2026, driven by Vector AI and Unity Ads Network growth, while total revenue increased 24% to $546 million.
• Create Solutions revenue increased 2% to $158 million in the quarter to June 2026, as subscription growth was partly offset by lower cloud and hosting revenue following the portfolio reset in 2025.
• Unity serves independent developers through large enterprises and competes in an advertising ecosystem that includes Amazon, Meta, Google, Microsoft and Tencent, most of which are also partners and customers.

What the price assumes

At $39.86, the reverse DCF implies that free cash flow after stock pay grows 26.7% a year for ten years using a 10.2% discount rate.

The historical comparison is 28.1% annual revenue growth over the last 5 years, not a demonstrated record of cash flow growth after stock pay.

The TenQ check slows that revenue record halfway toward 4% to set a 16.1% bar, so the implied cash growth exceeds the check even though it sits below the historical revenue pace.

Value U on your own assumptions

What could change the story

• Adjusted EBITDA of $160 million and a 29% margin in the quarter to June 2026 did not yet translate into GAAP profitability, with a net loss of $23 million.
• Over the last twelve months, stock pay was $342 million alongside $538 million of free cash flow, while shares outstanding increased 35.6% over 3 years, limiting how much business growth reaches each share.
• Goodwill represented 47% of assets at the end of June 2026, almost entirely from the 2022 ironSource merger, and had never been written down despite the subsequent business exits.
• Vector's effectiveness, competition from firms such as AppLovin, and changes to app store policies or privacy rules could alter advertising performance.
• Cash and short-term investments of $2.4 billion sit against $2.2 billion of debt, while negative earnings fail the TenQ interest coverage check.

What to watch next

• For the quarter to September 2026, Unity expects Strategic Revenue of $540 million to $550 million, including Strategic Grow Revenue of $380 million to $385 million and Strategic Create Revenue of $159 million to $163 million.
• Expected Non-Strategic Revenue of $20 million includes approximately one month of Supersonic revenue, making the distinction between continuing operations and exited businesses important when comparing growth.
• Unity expects adjusted EBITDA of $185 million to $190 million and GAAP profitability by the quarter to September 2026, so the GAAP result, cash flow and stock pay will show how broadly the improvement carries through.
• Unity also plans to repay its convertible notes issued in 2021 in November 2026, making cash balances and debt reduction another measure of the transition.

Sources

• Unity Software's earnings release, filed with the SEC
• Its latest 10-Q or 10-K, for the risk factors
• The U stock report, for every figure and check