To The Moon

$Unity Software Inc.(U)$

After a bruising year of underperformance, Unity Software (NYSE: U) is showing early signs of stabilization — and perhaps even a turnaround. Once hailed as the dominant platform for real-time 3D content creation and a linchpin of the gaming and metaverse ecosystems, Unity’s stock has been battered by slowing revenue growth, uneven execution, and broader tech sector weakness. Shares remain down more than 65% from their all-time high in 2021 and about 40% off their 2024 peak.

Yet recent developments suggest that Unity may finally be turning the corner. With a new CEO at the helm, an improving cost structure, and emerging growth opportunities beyond gaming, Unity is positioning itself for what could be a much-needed second act. For long-term investors, the question now is whether Unity has what it takes to bounce back — and what the right price is to buy in.

Here, we explore the three catalysts fueling Unity’s potential recovery, assess the company’s intrinsic value, and offer a verdict on whether investors should buy, sell, or hold at today’s levels.

Catalysts Fueling Unity Software’s Recovery

1. New Leadership Brings Focus and Discipline

One of the most promising developments at Unity has been its leadership change. In early 2025, former Microsoft executive Matthew Bromberg took over as CEO, replacing John Riccitiello after a tumultuous few quarters. Bromberg has a reputation for operational rigor and strategic focus — qualities Unity sorely needed after years of sprawling ambitions and costly missteps.

Since taking the reins, Bromberg has initiated a restructuring plan aimed at cutting costs and refocusing resources on Unity’s core businesses: the creation tools beloved by developers and the monetization platform powering in-game advertising. Early evidence of his impact is already visible: operating expenses fell 12% year-over-year in Q1 2025, and adjusted EBITDA swung back into positive territory.

Investors have responded favorably to Bromberg’s clear messaging around profitability and customer focus. By trimming non-core initiatives and tightening execution, Unity is building a more sustainable foundation for long-term growth.

2. Advertising Rebound Amid Industry Stabilization

Unity’s Operate Solutions business, which monetizes mobile games via advertising, has been a major drag on results over the past two years, as privacy changes from Apple and macro headwinds hurt mobile ad spend. However, there are signs that the worst may be behind us.

Industry data suggests mobile ad spending is stabilizing, and Unity has begun rolling out improvements to its ad platform to regain lost market share. New tools that better comply with privacy restrictions while maintaining ad effectiveness have been met with positive feedback from developers.

In Q1, Operate revenue grew sequentially for the first time in over a year, a potential turning point. If Unity can sustain this momentum and recapture some of the high-margin advertising dollars that previously fueled its growth, the company’s overall profitability outlook will improve significantly.

3. Expanding Beyond Gaming into Industrial Applications

Perhaps the most exciting long-term opportunity for Unity lies outside gaming. Its real-time 3D technology is increasingly being adopted in industries such as automotive, architecture, engineering, and film production.

Automakers like Mercedes-Benz and BMW are already using Unity to design virtual showrooms and simulate driving experiences. Construction and engineering firms are leveraging Unity to create immersive project visualizations. These industrial applications not only expand Unity’s addressable market but also tend to generate higher margins and more stable revenues than gaming alone.

While these segments are still nascent compared to gaming, they are growing at double-digit rates and could become meaningful contributors over the next 3–5 years. As enterprises continue investing in digital twins, metaverse concepts, and immersive design tools, Unity is well-positioned to be a key beneficiary.

Declining Billings Reflect Product and Sales Weakness

Even as Unity pursues its turnaround strategy, not all trends have turned positive yet. One area of continued concern is billings growth, which has remained weak and even declined year-over-year in recent quarters.

Billings — a forward-looking indicator of revenue growth — fell approximately 7% year-over-year in Q1 2025, signaling persistent softness in new sales and renewals. This suggests that Unity is still struggling to fully regain customer confidence following a turbulent 2023–2024, when the company alienated some developers with controversial pricing changes and uneven platform performance.

The slowdown in billings also reflects competitive pressure, particularly from Epic’s Unreal Engine and emerging open-source alternatives that are increasingly appealing to budget-conscious or frustrated developers. While management has acknowledged the challenge and promised renewed focus on product quality and customer engagement, it remains to be seen how quickly these efforts can translate into restored sales momentum.

Customer Churn Hurts Long-Term Outlook

Related to weak billings is the issue of customer churn, which has become an increasingly pressing problem for Unity. During the peak of its growth phase, Unity boasted best-in-class developer retention rates thanks to its ease of use and broad ecosystem. However, in the wake of unpopular monetization experiments and operational missteps, Unity has lost some of its goodwill with its customer base.

Higher churn not only weighs on near-term revenue growth but also damages Unity’s long-term competitive position. Once developers switch engines, it is difficult and costly to win them back, as teams tend to build workflows and assets specific to a platform.

In particular, smaller independent developers — a historically strong segment for Unity — have proven sensitive to price increases and reliability issues, while some larger studios have begun diversifying their technology stacks to reduce dependence on Unity. Reducing churn and rebuilding trust will be critical if Unity hopes to return to sustained, profitable growth.

Long Payback Periods Delay Returns

Another structural challenge facing Unity is the long payback period on customer acquisition. Unlike many SaaS businesses with relatively short sales cycles and fast ramp-up, Unity’s customer economics can take several quarters — or even years — to turn profitable.

The reason lies in the nature of game development cycles and the complexity of real-time 3D projects in industrial sectors. Once Unity signs a customer, it can take 12–24 months before the customer’s product hits the market and begins generating meaningful monetization revenue that Unity can participate in.

This lag slows Unity’s ability to show clear ROI on its sales and marketing investments, making it more vulnerable to execution missteps and competitive pressure in the interim. While Unity’s premium product and sticky platform theoretically make the long payback worthwhile, it also means that revenue growth can remain muted for several quarters even if underlying bookings begin to improve.

Balanced Perspective

These three risks — declining billings, customer churn, and long payback periods — temper the bullish case for Unity and underscore the challenges facing its new leadership team. Investors should keep them in mind when considering an investment and size positions accordingly.

While Unity’s long-term potential remains compelling, these headwinds suggest that recovery will not be instantaneous and that volatility is likely to persist. For long-term investors who can tolerate the risk, however, these challenges may already be partially reflected in the stock’s discounted valuation.

Verdict: Buy, Sell or Hold?

Unity remains a high-beta, high-risk investment — but at current levels, the risk-reward has improved. With a credible turnaround plan under new leadership, signs of advertising recovery, and promising growth avenues in industrial markets, Unity’s long-term story is far from broken.

That said, patience will be required. Execution risk remains high, competitive pressures from Epic Games and others are not going away, and macro conditions could remain challenging.

For long-term, risk-tolerant investors who believe in Unity’s technology and vision, Buy on weakness remains a reasonable stance, particularly for those willing to hold through volatility. For shorter-term traders or those with a lower risk appetite, Hold may be prudent until more evidence of sustainable profitability emerges.

Intrinsic Value and Entry Price

We estimate Unity’s intrinsic value at approximately $28–32 per share, based on a discounted cash flow (DCF) model assuming a 10% annual revenue growth rate over the next five years, EBITDA margin expansion to 25%, and a 12% discount rate.

At the time of writing, Unity trades near $23, implying about 20–35% upside to our fair value range.

An attractive entry point would be anywhere below $25, providing a meaningful margin of safety while maintaining exposure to potential upside if the turnaround succeeds. Investors should also monitor upcoming quarterly results closely for confirmation of progress on cost control and revenue recovery.

Conclusion: Key Takeaways

1. Unity has endured a steep sell-off, but recent leadership changes and operational improvements suggest a possible path to recovery.

2. Its three biggest catalysts — new CEO-driven discipline, an advertising rebound, and expanding industrial applications — provide reasons for cautious optimism.

3. Valuation appears compelling for long-term investors, with intrinsic value estimated around $28–32, implying upside from current levels.

4. Execution risks remain high, and competition is fierce, but Unity’s differentiated technology and market position remain valuable.

In short, Unity’s next act is still being written — but the building blocks for a comeback are falling into place. For those willing to look past the near-term noise and focus on long-term potential, the stock is worth a closer look.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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