Unity Software has seen a significant share price increase after a price target raise by Jefferies analyst Brent Thill to $35, based on improved 2025 ad spend expectations. The firm reported Unity's annual free cash flow at $308 million, translating to a 45x price-to-free-cash-flow ratio on a $14 billion market cap. Analysts anticipate a tripling of this cash flow over five years, approaching $1 billion by 2030. Despite the attractive growth forecasts, questions remain regarding the valuation and the necessary growth rate justification.
Citing data from his company's 2Q mobile game ad tech survey, Thill said "overall 2025 ad spend expectations improved off of April" and are now on course for nearly 4% year-over-year growth.
Unity does generate substantial positive free cash flow -- $308 million over the last 12 months. On a $14 billion stock, that works out to a 45x price-to-free-cash-flow valuation.
Analysts polled by S&P Global Market Intelligence forecast Unity will more than triple its free cash flow (FCF) over the next five years to nearly $1 billion in 2030.
Still, going from $308 million to just under $1 billion in five years works out to only a 26% annualized FCF growth rate. I'd prefer to see that go higher to justify the stock's 45x FCF valuation.
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