Unity Software Inc. 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Unity Software Inc.

10-K

Annual report

Filing date:

02/21/2025

TLDR:

Unity Software Inc.’s 2024 10-K filing reveals a decrease in revenue compared to 2023, driven by declines in both Create and Grow Solutions, but an improvement in net loss. The company is focused on a portfolio reset, concentrating on the Unity Engine and Monetization solutions.

ELI5:

Unity, a company that makes tools for creating 3D content, made less money in 2024 than in 2023, but they also lost less money overall. They are focusing on their main products to improve their business.

Accession #:

0001810806-25-000026

Published on

March 16, 2025

Analyst Summary

Total revenue decreased from $2,187.3 million in 2023 to $1,813.3 million in 2024.
Create Solutions revenue decreased from $859.2 million in 2023 to $614.0 million in 2024.
Grow Solutions revenue decreased from $1,328.1 million in 2023 to $1,199.3 million in 2024.
Gross Profit Margin increased from 66.4% to 73.5%.
Operating Profit Margin decreased from -38.1% to -41.6%.
Net Profit Margin increased from -37.8% to -36.6%.
Current Ratio decreased from 2.60 to 2.50.
Debt-to-Equity Ratio decreased from 1.20 to 1.04.
Revenue Growth decreased by -17.1%.
Net Income Growth increased by 19.6%.
Dollar-based net expansion rate decreased from 100% to 96%.
Free Cash Flow increased from $178,779 to $286,004.

Opportunities and Risks

Opportunity: Improved gross profit margin suggests better cost management or pricing strategies.
Risk: Revenue decline indicates challenges in market competitiveness or product demand.
Risk: Negative operating and net profit margins indicate ongoing profitability concerns.
Risk: Decreased dollar-based net expansion rate suggests challenges in retaining and growing revenue from existing customers.

Potential Implications

Company Performance

Future performance hinges on successful execution of the portfolio reset.
Adaptation to market changes is crucial for revenue recovery.
Continued focus on cost management is necessary to improve profitability.
Maintaining a strong liquidity position is essential for financial stability.

Stock Price

Improved free cash flow could positively influence investor sentiment.
Ongoing losses and revenue decline may negatively impact stock valuation.
Successful execution of strategic initiatives could drive stock price appreciation.
Market perception of the company’s ability to compete and innovate will influence stock performance.

Unity Software Inc. – 2024 10-K Filing Report

Executive Summary

This report analyzes Unity Software Inc.’s 2024 10-K filing. Key findings include a decrease in revenue compared to 2023, driven by declines in both Create and Grow Solutions. The company continues to operate at a net loss, although there is an improvement compared to prior years. Management is focused on a portfolio reset, concentrating on the Unity Engine and Monetization solutions. Several risks and opportunities are identified, including competition, execution of restructuring plans, and the evolving regulatory landscape. Overall, a cautious approach is warranted, with a “Hold” recommendation. Future performance hinges on successful execution of the portfolio reset and adaptation to market changes.

Company Overview

Unity Software Inc. is a leading platform for creating and operating interactive 3D content. The company operates through two primary segments: Create Solutions and Grow Solutions. Create Solutions provides tools and services for content creation, while Grow Solutions focuses on monetization and user acquisition. Unity serves a diverse customer base across gaming and various industries. The company faces competition from proprietary game engines, other development platforms, and advertising networks.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management acknowledges the revenue decline and attributes it to competition and the portfolio reset. The tone is cautiously optimistic, emphasizing the long-term benefits of the restructuring. Forward-looking statements are prevalent, particularly regarding the success of the portfolio reset and new technology advancements. Red flags include the history of losses and the uncertainty surrounding the impact of pricing changes.

Financial Statement Analysis

Revenue

Total revenue decreased from $2,187.3 million in 2023 to $1,813.3 million in 2024.
Create Solutions revenue decreased from $859.2 million in 2023 to $614.0 million in 2024.
Grow Solutions revenue decreased from $1,328.1 million in 2023 to $1,199.3 million in 2024.

<img src="data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAu4AAAHsCAIAAAD99999AAAACXBIWXMAAA9hAAAPYQGoP6uNAAAgAElEQVR4nOzdeXwU1f3/8d1777333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n333n

Financial Ratio and Metric Analysis

Profitability

Gross Profit Margin

Ratio/Metric: Gross Profit / Revenue = $1,332,402 / $1,813,255 = 73.5%
Trend: Previous year Gross Profit Margin = $1,453,595 / $2,187,317 = 66.4%. Percentage change = (73.5% – 66.4%) / 66.4% = 10.7%
Industry: The software industry typically has high gross margins, often in the 60-80% range. Unity’s current gross margin of 73.5% is within this range.

Operating Profit Margin

Ratio/Metric: Loss from Operations / Revenue = ($755,149) / $1,813,255 = -41.6%
Trend: Previous year Operating Profit Margin = ($832,794) / $2,187,317 = -38.1%. Percentage change = (-41.6% – (-38.1%)) / -38.1% = -9.2%
Industry: Software companies can have a wide range of operating margins, depending on their growth stage and spending on R&D and marketing. A negative operating margin indicates the company is not profitable from its core operations.

Net Profit Margin

Ratio/Metric: Net Loss / Revenue = ($664,287) / $1,813,255 = -36.6%
Trend: Previous year Net Profit Margin = ($826,322) / $2,187,317 = -37.8%. Percentage change = (-36.6% – (-37.8%)) / -37.8% = -3.2%
Industry: Similar to operating margin, net profit margins in the software industry vary. A negative net profit margin indicates an overall loss for the company.

Return on Assets (ROA)

Ratio/Metric: Net Loss / Total Assets = ($664,287) / $6,737,407 = -9.9%
Trend: Previous year ROA = ($826,322) / $7,243,441 = -11.4%. Percentage change = (-9.9% – (-11.4%)) / -11.4% = -13.2%
Industry: ROA measures how efficiently a company uses its assets to generate profit. A negative ROA indicates the company is not generating profit from its assets.

Return on Equity (ROE)

Ratio/Metric: Net Loss / Total Stockholders’ Equity = ($664,287) / $3,196,521 = -20.8%
Trend: Previous year ROE = ($826,322) / $3,188,581 = -25.9%. Percentage change = (-20.8% – (-25.9%)) / -25.9% = -19.7%
Industry: ROE measures how efficiently a company uses shareholders’ equity to generate profit. A negative ROE indicates the company is not generating profit from its equity.

Earnings Per Share (EPS) – Basic and Diluted

Ratio/Metric: Net Loss Attributable to Unity Software Inc. / Weighted-Average Shares = ($664,114) / 395,951 = -$1.68
Trend: Previous year EPS = ($822,011) / 380,457 = -$2.16. Percentage change = (-$1.68 – (-$2.16)) / -$2.16 = -22.2%
Industry: EPS is a fundamental measure of profitability. Negative EPS indicates a loss per share.

Liquidity

Current Ratio

Ratio/Metric: Total Current Assets / Total Current Liabilities = $2,225,351 / $889,487 = 2.50
Trend: Previous year Current Ratio = $2,324,891 / $894,103 = 2.60. Percentage change = (2.50 – 2.60) / 2.60 = -3.8%
Industry: A current ratio of 2.50 indicates strong liquidity, suggesting the company has sufficient current assets to cover its current liabilities. A healthy range is typically between 1.5 and 2.5.

Quick Ratio (Acid-Test Ratio)

Ratio/Metric: (Total Current Assets – Inventory) / Total Current Liabilities. Assuming inventory is negligible (not explicitly listed), Quick Ratio ≈ Current Ratio = 2.50
Trend: Previous year Quick Ratio ≈ Current Ratio = 2.60. Percentage change = (2.50 – 2.60) / 2.60 = -3.8%
Industry: The quick ratio is a more conservative measure of liquidity. A quick ratio above 1 is generally considered healthy.

Cash Ratio

Ratio/Metric: (Cash and Cash Equivalents) / Total Current Liabilities = $1,517,672 / $889,487 = 1.71
Trend: Previous year Cash Ratio = $1,590,325 / $894,103 = 1.78. Percentage change = (1.71 – 1.78) / 1.78 = -3.9%
Industry: A cash ratio above 1 indicates the company can cover its current liabilities with its most liquid assets.

Solvency/Leverage

Debt-to-Equity Ratio

Ratio/Metric: Total Liabilities / Total Stockholders’ Equity = $3,310,259 / $3,196,521 = 1.04
Trend: Previous year Debt-to-Equity Ratio = $3,829,063 / $3,188,581 = 1.20. Percentage change = (1.04 – 1.20) / 1.20 = -13.3%
Industry: A debt-to-equity ratio of 1.04 indicates a moderate level of leverage.

Debt-to-Assets Ratio

Ratio/Metric: Total Liabilities / Total Assets = $3,310,259 / $6,737,407 = 0.49
Trend: Previous year Debt-to-Assets Ratio = $3,829,063 / $7,243,441 = 0.53. Percentage change = (0.49 – 0.53) / 0.53 = -7.5%
Industry: A debt-to-assets ratio of 0.49 suggests that approximately 49% of the company’s assets are financed by debt.

Interest Coverage Ratio (Times Interest Earned)

Ratio/Metric: Loss from Operations / Interest Expense = ($755,149) / ($23,542) = -32.1
Trend: Previous year Interest Coverage Ratio = ($832,794) / ($24,580) = -33.9. Percentage change = (-32.1 – (-33.9)) / -33.9 = -5.3%
Industry: A negative interest coverage ratio indicates the company is not generating enough operating income to cover its interest expenses.

Activity/Efficiency

Asset Turnover

Ratio/Metric: Revenue / Total Assets = $1,813,255 / $6,737,407 = 0.27
Trend: Previous year Asset Turnover = $2,187,317 / $7,243,441 = 0.30. Percentage change = (0.27 – 0.30) / 0.30 = -10.0%
Industry: A low asset turnover ratio suggests the company is not efficiently utilizing its assets to generate revenue.

Valuation

Price-to-Earnings Ratio (P/E)

Ratio/Metric: Stock Price / EPS = $28.34 / (-$1.68) = -16.9
Trend: Not Applicable
Industry: A negative P/E ratio is not meaningful and indicates the company has negative earnings.

Price-to-Book Ratio (P/B)

Ratio/Metric: Market Cap / Total Stockholders’ Equity. Market Cap = Shares Outstanding * Stock Price = 409,393 * 1000 * $28.34 = $11,600,254,020. P/B = $11,600,254,020 / $3,196,521,000 = 3.63
Trend: Not Applicable
Industry: A P/B ratio of 3.63 suggests the market values the company at more than three times its book value.

Price-to-Sales Ratio (P/S)

Ratio/Metric: Market Cap / Revenue = $11,600,254,020 / $1,813,255,000 = 6.40
Trend: Not Applicable
Industry: A P/S ratio of 6.40 indicates investors are willing to pay $6.40 for every dollar of Unity’s revenue.

Enterprise Value to EBITDA (EV/EBITDA)

Ratio/Metric: (Market Cap + Total Debt – Cash) / Adjusted EBITDA. Total Debt ≈ Convertible Notes = $2,238,922. EV = $11,600,254 + $2,238,922 – $1,517,672 = $12,321,504. EV/EBITDA = $12,321,504 / $389,814 = 31.6
Trend: Not Applicable
Industry: A high EV/EBITDA ratio suggests the company is overvalued or has high growth expectations.

Growth Rates

Revenue Growth

Ratio/Metric: (Current Revenue – Previous Revenue) / Previous Revenue = ($1,813,255 – $2,187,317) / $2,187,317 = -17.1%
Trend: Not Applicable
Industry: A negative revenue growth rate indicates a decline in sales.

Net Income Growth

Ratio/Metric: (Current Net Income – Previous Net Income) / Previous Net Income = (($664,287) – ($826,322)) / ($826,322) = 19.6%
Trend: Not Applicable
Industry: A positive net income growth rate indicates an increase in profitability.

EPS Growth

Ratio/Metric: (Current EPS – Previous EPS) / Previous EPS = (-$1.68 – (-$2.16)) / (-$2.16) = -22.2%
Trend: Not Applicable
Industry: A positive EPS growth rate indicates an increase in per-share profitability.

Other Relevant Metrics

Dollar-based net expansion rate

Ratio/Metric: 96%
Trend: Previous year Dollar-based net expansion rate = 100%. Percentage change = (96% – 100%) / 100% = -4%
Industry: A dollar-based net expansion rate below 100% indicates that existing customers are generating less revenue than in the previous year.

Adjusted Gross Profit and Margin

Ratio/Metric: Adjusted Gross Profit = $1,509,315. Adjusted Gross Margin = 83%
Trend: Previous year Adjusted Gross Profit = $1,801,488. Previous year Adjusted Gross Margin = 82%. Percentage change in Adjusted Gross Margin = (83% – 82%) / 82% = 1.2%
Industry: Adjusted gross profit and margin provide a view of profitability excluding certain non-cash expenses.

Adjusted EBITDA

Ratio/Metric: $389,814
Trend: Previous year Adjusted EBITDA = $447,829. Percentage change = ($389,814 – $447,829) / $447,829 = -12.9%
Industry: Adjusted EBITDA is a non-GAAP metric that provides a view of profitability before interest, taxes, depreciation, and amortization, adjusted for stock-based compensation and other items.

Free Cash Flow

Ratio/Metric: $286,004
Trend: Previous year Free Cash Flow = $178,779. Percentage change = ($286,004 – $178,779) / $178,779 = 60.0%
Industry: Free cash flow is a measure of the cash a company generates after accounting for capital expenditures.

Commentary

Unity’s financial performance in 2024 shows a mixed picture. While the gross profit margin improved, revenue declined significantly, leading to a negative operating and net profit margin. The company maintains a strong liquidity position, but profitability metrics remain weak. The dollar-based net expansion rate decreased, indicating challenges in growing revenue from existing customers. Despite these challenges, free cash flow improved significantly, suggesting better cash management.