Unity Q2 FY12/24 Earnings Review
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The Grownups Have Arrived
by Alex King, CEO, Cestrian Capital Research, Inc
Unity should, in theory, be a great business model. It provides a development and runtime environment where game developers, movie graphics developers and others can write, host and play out content. This is a natural industry-utility kind of business where you need some vertical market expertise vs. just having AWS or Azure or whatever provide the infrastructure; and there isn’t much in the way of competition. Managed well that ought to mean U can grow at 15-20% plus with 20-30% unlevered pretax free cashflow margins. Unfortunately U has not been well managed; the parting of ways with the prior CEO and now also the prior CFO are evidence of that. The company now has a new top-two executive team at the reins, and it is starting to show. Margins are improving as is the balance sheet; and the statement right at the top of the earnings report to the effect that “we are here to serve our developer partners” is good to see, because one cause of the major share price collapse here was the company getting into a public fight with those self-same developers - not wise. I am cautiously optimistic on U stock but so far any such enthusiasm on my part has been met solely with value destruction. Personally I own a modest allocation; if it does well I shall be pleased and if not, I can live with it.
Below - available to paying subscribers of all tiers here - we review the fundamentals, the valuation, the stock chart, our rating and price target. Read on folks.