In short: The call's featured long, with a published model (Unity Valuation and Risk Framework.xlsx) in this folder. "They absolutely crushed earnings. And we think that the whole AI risk is overblown there. So we are looking to add to Unity between 35 and 40 with a base case target of 55 and an upside target above 70." The quarter: revenue $546.5M vs $514M expected, EPS $0.28 vs $0.22, EBITDA margins expanded to 27%, contribution margin 82-83%. The engine is Vector, its AI/ML mobile-ad platform, +23% quarter over quarter and past a $1B annual run rate two quarters earlier than expected, helped by the day-28 return-on-ad-spend rollout replacing legacy seven-day metrics, and by sunsetting the low-margin ironSource network and divesting Supersonic. The moat: a real-time-3D duopoly with Unreal Engine underpinning 60% of top mobile titles and 70% of the top 1,000 mobile games, plus non-gaming digital twins and spatial computing. "I do think that the business is set to, frankly, even compete with AppLovin." Risks: AppLovin's Axon 2.0 and a post-run-up multiple — "which is why we think you should buy more on a pullback." Deck pages 28-30.
Unity sells the software that game developers use to build games — the "engine" that handles graphics, physics and animation and then publishes the finished game to iPhones, Android, PlayStation, Xbox and headsets. Only one serious rival exists (Unreal Engine), and between them they sit underneath about 60% of the top mobile games and 70% of the top thousand. That gives Unity a captive audience.
The money, though, increasingly comes from the second half of the business: selling and placing the advertisements inside those games. That side now generates most of Unity's revenue, and its new AI-driven ad system, Vector, is the reason the stock is interesting. Vector grew 23% in three months and passed a billion dollars of annualized revenue two quarters earlier than anyone expected. One concrete improvement explains a lot of it: Unity started measuring whether an ad paid for itself over 28 days instead of 7, which showed advertisers more of the value they were getting and made them spend more.
Around that, an ordinary turnaround is happening — a new chief executive brought in after the company alienated developers with a pricing change, several hundred jobs cut, low-margin legacy ad businesses shut down or sold. Profit margins went to 27%, and 82-83% of each incremental dollar of revenue drops through to profit.
Singh's own model puts fair value at $55 in the base case and $71 if growth keeps compounding, against a stock trading in the low-to-mid $40s — so he wants to buy between $35 and $40 rather than chase it. The bear argument he rejects is that AI makes Unity obsolete: he thinks the opposite, that Unity is now equipped "to frankly even compete with AppLovin," the dominant mobile ad-tech company. The real risk is simpler: AppLovin's own engine keeps improving, and the stock has already run.
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