On Wednesday at 1:05 p.m. ET, the shares of Unity Software (U), a company specializing in 3D graphics software, surged by 12.7%. It’s quite clear what might be causing this upward trend.
This morning, it was announced by StreetInsider.com that analyst Brent Thill from Jefferies increased Unity’s price target significantly, up to $35, and maintained his advice to buy shares of the company.
What Jefferies says about Unity
From my vantage point, I’ve noticed an interesting trend. According to data from our company’s 2Q mobile game ad tech survey, expectations for 2025 ad spend have shown an improvement compared to April figures. This growth trajectory is now projected to be approximately 4% year-on-year. It’s worth mentioning that Unity’s market share in this sector is expanding and showing a favorable trend, which has prompted me to revise my earnings estimates for the stock. Consequently, I’ve also increased my price target.
Is Unity stock a buy?
Is this price target justified? Perhaps.
In terms of generally accepted accounting principles (GAAP), Unity is currently not profitable. However, it’s important to note that over the past year, Unity has produced an impressive $308 million in free cash flow. Given its current market capitalization of $14 billion, this translates to a relatively high 45 times price-to-free-cash-flow ratio for its stock.
Indeed, it might seem costly, but the projected growth for Unity shares is remarkable and could even warrant an investment. Analysts surveyed by S&P Global Market Intelligence predict that Unity will significantly increase its free cash flow (FCF) over the next five years, reaching close to $1 billion in 2030. Under such circumstances, the stock’s high valuation may prove to be justified.
In five years, the Free Cash Flow (FCF) growth rate has been around 26%, which, considering the stock’s 45 times FCF valuation, seems quite modest. I would prefer to see this growth rate increase significantly or perhaps witness a slight dip in the stock price before considering an investment in Unity myself.
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2025-07-16 22:18