Unity Software (NYSE:U) has been a laggard in the stock market and has failed to make a meaningful recovery since the tech selloffs in 2021. However, the stock could be making progress on that front as it has risen sharply after its Q4 2024 earnings report. It is still down 86%, so should you buy U stock? Let’s take a look.
Unity’s Q4 2024 earnings report trounced Wall Street’s expectations. Revenue came in at $457 million and surpassed analysts’ estimates of $432 million. It is down 25% year-over-year due to a “portfolio reset,” but the beat has improved the sentiment around U stock markedly.
Adjusted EBITDA of $106 million also beat analyst expectations. The margin here is 23%. Net loss narrowed sharply to $123 million from $254 million in the year-ago quarter.
For all of 2024, revenue reached $1.813 billion and exceeded guidance estimates of $1.79 billion. Unity significantly improved free cash flow to $286 million for the year.
Unity has projected Q1 2025 revenue between $405 million and $415 million. This is below Wall Street's estimate of $436.6 million. However, adjusted EBITDA guidance of $60–$65 million implies narrowing losses.
Analysts still expect a full-year EPS decline of 35.3%, along with 3.2% sales decline before we see a 19.4% recovery in EPS and a 10.5% sales recovery next year. In exchange, U stock is changing hands at almost 41 times forward earnings and well over 6 times forward sales, so it is quite expensive for the underlying fundamentals.
Moreover, the consensus price target of $23.61 implies 15.6% downside risk from here. The highest price target of $38 still implies considerable upside, but I’d refrain from buying U stock.
