Unity Software Inc. (U – Get Rating) provides a platform that offers software solutions to create, run, and monetize interactive, real-time 2D and 3D content for mobile phones, tablets, consoles, and Augmented Reality (AR) and Virtual Reality (VR) devices.

In late June, U announced an Artificial Intelligence (AI) software marketplace, which boosted its stock price. The company’s customers could access choices such as generating game dialogue or textures and graphics using AI from independent companies.

However, U’s stretched valuation is concerning. In terms of its forward non-GAAP P/E, the stock is trading at 106.69x, 336% higher than the industry average of 24.47x. Also, its forward EV/EBITDA multiple of 71.11 is 375.5% higher than the 14.95 industry multiple.

Given this backdrop, let’s look at the trends of U’s key financial metrics to understand why it might be wise to avoid the stock now.

A Detailed Analysis of Unity Software’s Financial Performance and Market Prediction

U’s trailing-12-month net income shows a consistently negative trend from December 2020 to March 2023. Let’s highlight some key data points for a better understanding:

• As of December 2020, the net income stood at -$282.31 million.
• By March 2021, the net income dropped even further to -$363.03 million.
• In the following quarters, the negative net income gradually increased. As of June 2021, it was -$484.02 million, September 2021 reflected -$454.46 million, and by the end of December 2021, the value was -$532.61 million.
• In the first quarter of 2022, the net income had fallen to -$602.70 million. It continued to fall and reached -$658.52 million by the second quarter and further down to -$793.39 million in the third quarter of 2022.
• By the end of 2022, the downward trend pushed the net income to -$921.06 million.
• The last available data from March 2023 show that the net income has increased its loss to -$996.54 million.

Hence, the company experienced an expanded loss over this period from -$282.31 million in December 2020 to -$996.54 million in March 2023. This means the net income fell by approximately $714.23M, indicating a significant decline in the company’s financial performance with a calculated compound growth decline rate of over 250%.

The rising negative net income reflects a weakening financial condition of the company across these years. Emphasizing more recent data, there is an escalating…

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