Is Unity Software a Good Buy?
I want to put half my net worth in this stock. It looks like such a great company. Should I pull the trigger?
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1) The market has undervalued Unity's acquisition of ironSource. Unity's top line has grown 40% YoY for the past few years as Unity has focused on the aggressive acquisition of new clients. ironSource provides Unity with the means (advertisement software) to strengthen Unity's EBITDA margin and bottom line by providing much needed alternative monetization avenues. An all-stock transaction valued at $4.4B is not ideal, but is worthwhile given that it would save Unity from being the equivalent of Twitter (a high growth yet unprofitable company)
2) The market has undervalued Unity's position in the game engine market. In 2020, 93 of the largest 100 game studios used Unity. Competitors would find it difficult to displace Unity as THE primary game engine provider in the market.
3) Unity has a FORTRESS balance sheet given its growth company status. Unity has a current ratio of around 3.5x, a D/E of 77%, and 1.1B of cash in its war chest. Given the most bearish scenarios, Unity has the capital to holdout and eventually grow in the future.
Once a recession occurs or the risk a recession dimishes, the current bear market will end, allowing Unity to trade at similar multiples as seen during the pandemic.
Helpful - where did you find these insights?
Interested
I love unity as a company. The market doesn’t understand how vital unity is to gaming, this thing is ESSENTIAL to the entire video game industry and has a fantastic track record. If it keeps getting battered I’m gonna dump a fat amount of money into it.
Unity's top line has grown 40% YoY and investors have revised future estimates of top line growth to be 20% YoY???? Sounds ridiculous to me.
Things to consider
-execution issues w/their data platform
-demand destruction from a weak customer base
-changing industry dynamics
-questionable m&a activity
Refer to Exhibit A.
-weak customer base - WRONG
-questionable m&a activity - WRONG
Only SOMEWHAT valid points are execution issues (solved by acquisition of ironSource) and changing industry dynamics (would love to hear your take, but if you mention Unreal Engine as a threat you are a clown).
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