Unity Software: Sell as -30.4% GAAP Operating Margin, 932 bps Gross Margin Drop, and Dilution Price Shares at 4.84x DCF Value
Post-reset Vector ad-network gains lifted TTM revenue +13.6% to $2.03B, yet $616.0M in GAAP operating losses, $341.9M in SBC, and 55.2% multi-year share expansion cap DCF fair value at $9.13.
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Unity Software generated $2.03B ($2,028.41M) in trailing twelve-month GAAP revenue (+13.60% year over year) through June 30, 2026, rebounding off its post-restructuring $1.81B FY2024 and $1.85B FY2025 base yet still standing 7.26% below its $2.19B FY2023 top-line mark. [1] Enthusiasm surrounding management's cancellation of the controversial Runtime Fee and rollout of the
Auditing Unity's primary Form 10-K and Form 10-Q statements exposes severe economic leakage beneath non-GAAP EBITDA headlines. First, scaling Vector neural ad-bidding models and cloud hosting drove 932 bps of GAAP gross margin compression in Q2 2026 TTM, pulling gross margin down from 74.17% in FY2025 to 64.85%, so $178.76M in incremental revenue over FY2025 yielded -$56.42M in lower GAAP gross profit ($1,315.49M TTM vs. $1,371.91M FY2025).
[1] Second, Unity spent $1,026.78M on research and development (50.25% pillar R&D intensity) and incurred $480.53M in depreciation and M&A intangible amortization, deepening TTM GAAP operating losses to -$616.00M (-30.37% margin). [1][2]
Third, while non-cash add-backs lift GAAP free cash flow to $538.39M (26.54% margin), employee stock-based compensation consumes $341.93M (16.86% of revenue, or 63.51% of GAAP FCF), leaving just $196.46M (9.69% margin) in true SBC-burdened Owner FCF. [1] Worse, five years of all-stock M&A (ironSource, Weta Digital) and heavy RSU grants bloated Unity's share count by 55.18% from 282.20M in FY2021 to 437.90M in Q2 2026 (+10.51% modeled annual dilution).
Even on an unburdened GAAP FCF basis (pretending $341.9M of annual SBC is free), fair value is $31.89 (-27.8% below spot); properly burdened for SBC and dilution, base DCF stands at $9.13 (-79.3%). [1]
Exhibit 1Financial Schedule
Unity posted >$3.1B in cumulative GAAP EBIT losses and 55% share dilution since FY2021
Filed GAAP income statement, cash flow bridge, and share count expansion across FY2022-TTM.
Line
FY2022
FY2023
FY2024
FY2025
TTM Q2 26
Revenue Reset & Gross Margin Compression
RevenueCreate Solutions engine subscriptions and Grow Solutions ad-mediation revenue
$1.39B
$2.19B
$1.81B
$1.85B
$2.03B
Gross profit
$948.52M
$1,453.60M
$1,332.40M
$1,371.91M
$1,315.49M
Gross marginCompressed 932 bps from FY2025 on cloud GPU ad-model hosting and mix
Operating income (EBIT)Includes $1,026.78M R&D and $480.53M D&A / ironSource intangible amortization
-$882.21M
-$832.79M
-$755.15M
-$479.05M
-$616.00M
Free cash flow (GAAP)GAAP operating cash flow ($553.74M TTM) less capital expenditures ($15.35M TTM)
-$116.57M
$178.78M
$286.00M
$403.93M
$538.39M
Stock-based compensation
$550.07M
$648.70M
$596.25M
$385.21M
$341.93M
Owner FCF (ex-SBC)Equals 9.69% of TTM revenue after deducting $341.93M employee equity grants
-$666.63M
-$469.92M
-$310.25M
$18.72M
$196.46M
Shares outstandingUp 55.18% from 282.20M shares in FY2021 via M&A and equity compensation
310.50M
380.46M
395.95M
420.91M
437.90M
Source: Unity Software Inc. SEC Form 10-K and Q2 2026 Form 10-Q filings.
Exhibit 2Data Exhibit
TTM revenue recovered to $2.03B while remaining below FY2023 post-merger peak
Filed GAAP revenue (primary bars) and headline GAAP FCF margin before SBC deduction (secondary line).
Revenue
FCF margin
Source: Unity Software Inc. SEC Form 10-K and Q2 2026 Form 10-Q filings.
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