Is Unity Software a buy?

It’s time to break down another software name. Here is the breakdown on $U, otherwise known as Unity Software.


Current Price: $108.89

52/Wk High: $174.94

52/Wk Low: $65.11


Market Cap: $30.3 Billion


Read below for the breakdown!


Unity Software ($U) is a major software company that offers a variety of solutions for 3D content creation and monetization across mobile devices, consoles, and PCs.


In recent news, Unity announced the acquisition of VisualLive, an augmented reality construction platform. The acquisition is expected to streamline Unity’s services, making processes more efficient.


The acquisition will also expand the company’s growth in the AEC industry and allows customers to easily increase cost savings.


“This will fundamentally change how design reviews, construction planning, field inspections, and facilities management are conducted,” management noted.


After IPO in 2020, Unity was virtually straight up, running to a high of $174.94/share, but quickly sold off with the NASDAQ shortly thereafter and is now down throughout the past three months by 24.69%, leaving investors to wonder if the stock is a buy.


Digging into the numbers, Unity beat Q4 2020 expectations with an EPS of $-0.10, better than the expected EPS of $-0.14. On a quarter over quarter basis, EPS declined from the Q3 EPS of $-0.09.



Revenues on the other hand impressed, jumping a strong 39% to $220.3 million, much better than the Q4 2019 revenues level of $158.071 million.



As for profits, gross profit increased significantly as well, increasing by $39.753 million to $167.829 million from the previous Q4 2019 gross profit level of $128.076 million.


Taking a look at customers, Unity reported that 793 customers are generating more than $100,000 in revenues each, an impressive increase over the 600 just a year ago.


While numbers were solid, Unity reported a loss from operations of $80.8 million for the quarter, which was a much larger loss than the previous Q4 2019 loss from operations of $48.6 million.


Rounding out the quarter, the dollar based net expansion rate improved throughout Q4 to 138%, better than the Q4 2019 level of 133%.


As for the full year, Unity reported strong revenues of $772.4 million, representing a strong jump of 43% from the FY 2019 revenues level.


Management was upbeat about the quarter.


“Unity achieved record fourth quarter and full year 2020 revenues in an unprecedented and fast changing technological and economic environment,” CEO John Riccitiello said.


Leadership also delivered strong guidance, expecting Q1 2021 revenues tot total $210 million to $220 million, representing revenue growth of 26% to 32%.


Full year guidance is also bullish, with management expecting FY 2021 revenues to total $950 million to $970 million, representing revenue growth of 23% to 26%.


Shifting into the balance sheet, the numbers are solid.


Total Debt: None


Total Liabilities: $634 Million


Total Assets: $2.671 Billion


Cash & Short Term Inv: $1.752 Billion


On a valuation basis, Unity does trade at a premium.


Price to Sales: 39.46x


Price to Book: 14.73x


Given the numbers the analysts are bullish with a mean price target of $149.00/share, representing a 36.84% upside.


The high price target is $176.00/share, representing a 60.71% upside while the low price target is $126.00/share, representing a 15.71% gain.


The big money is quite involved as well with 73.07% of Unity Software being owned by institutions. Top holders include Squoia Capital Partners, Silver Lake Partners, and Resolute Partners Group.


On a technical basis Unity could be presenting opportunity. According to the six-month charts the MACD recently crossed back to the upside within a tight range around -9.0412.


The six-month charts are also indicating an RSI of 44.5 and CCI of 29.72, both of which are on the low end.



In short, Unity Software is a solid company that has expanding revenues, a growing industry, and a solid balance sheet.


EAT - SLEEP - PROFIT


Disclaimer: This is not direct financial advice, simply an opinion based on independent research.