Unity Software (NYSE: U) recently released its Q4 results, with a loss of $0.30 per share on sales of $457 million, compared to the consensus estimates of $0.37 loss per share and $434 million in sales. Unity’s platform enables developers to create real-time 3D experiences. The company provides AI-enhanced tools that let creators develop and scale interactive 2D and 3D content, which can run across multiple devices. Despite issuing lower-than-expected Q1 guidance, Unity shares jumped 30% to $28 after announcing the migration to Vector – its new AI-powered advertising network, which boosted investor confidence.
Unity stock, with -32% returns since the beginning of 2024, has underperformed the S&P 500 index, up 28%. A controversial pricing change attempt last year and slowing revenue growth has weighed on the company’s stock performance. If you are looking for an upside with a smoother ride than an individual stock, consider the High-Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.
Image by Gerd Altmann from Pixabay
How Did Unity Fare In Q4?
Unity Software’s revenue of $457 million in Q4 reflected a 25% y-o-y decline. Looking at the segments, Create Solutions sales dropped significantly by 47% to $152 million. This decline is partially attributed to a difficult year-over-year comparison, as the prior year’s Q4 included $99 million from the Wētā FX agreement termination. The Grow Solutions segment also saw a decrease in sales, down 5% to $305 million.
Unity’s adjusted EBITDA margin contracted by 700 bps y-o-y to 23% in Q4. The margin was better than the company anticipated, driven by its cost-control measures. The company’s loss narrowed to $0.30 per share, versus $0.66 per share loss in the prior-year quarter. Looking forward, the company continues to expect near-term headwinds, with Q1 sales anticipated to be $410 million, lower than the consensus estimate of $430 million and the $460 million it reported in the prior-year quarter.
What Does It Mean For Unity Stock?
Unity shares rallied 30% following the announcement of its Q4 results. However, this kind of volatility is not unusual for Unity stock. Looking at a slightly longer timeframe, the decrease in U stock over the last four-year period has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were -7% in 2021, -80% in 2022, 43% in 2023, and -45% in 2024.
In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has comfortably outperformed the S&P 500 over the last four-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could Unity stock face a similar situation as it did in 2021, 2022, and 2024 and underperform the S&P over the next 12 months — or will it see a recovery? From a valuation perspective, Unity stock appears to be fully priced now.
At its current levels of $28, Unity stock carries a price-to-sales ratio of 6x, aligning with its three-year historical average. While recent results were positive, the weak guidance tempers enthusiasm. However, the shift to Vector, its AI-powered platform, shows promise for future revenue growth through enhanced ad targeting. Given these mixed factors and the stock trading at its historical valuation multiple, we believe the current price fairly reflects Unity’s value.
While Unity stock looks like it is fairly priced, it is helpful to see how Unity Software’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
| Returns | Feb 2025 MTD [1] |
Since start of 2024 [1] |
2017-25 Total [2] |
| U Return | 26% | -32% | -82% |
| S&P 500 Return | 1% | 28% | 173% |
| Trefis Reinforced Value Portfolio | -2% | 20% | 716% |
[1] Returns as of 2/21/2025
[2] Cumulative total returns since the end of 2016
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
