Take a position in Unity Software as a complementary hedge due to accelerating revenue/margins, strong FCF, and AI flywheel potential.

Unity Software. It's been about a year since we talked about Unity Software.

Let's talk about more what could go wrong, and I think we're gonna take a position again in Unity Software. It's been a year and a half since we covered it, but let's just run this through some of our tools.

Let's do Unity Software, the new IPO that it's still kind of owned by Blackstone,

Unity Software back in growth mode again. Management said on the last earnings call, which you can actually read and listen to now if you go to the Unity Software page, Investor Relations.

There's a slide deck, call transcripts, all that good stuff. Revenue is accelerating, but so are the profit margins.

So as companies like Unity, they've gotten their act together, Basically, they can go out and do the same thing that some people claimed happened to The Trade Desk, although we could also blame some macroeconomic factors on that as well.

Companies like Amazon went to those big brand customers and said, "Hey, why don't you use our DSP? We'll cut you a deal." It would seem that might be what's happening with Unity.

And would Unity Software be plenty happy turning a twenty percent operating margin when currently their operating margin is at negative six percent on a GAAP basis?

Free cash flow is up a lot this last quarter, but we can actually smooth it out. Last twelve months, you can actually see it's under thirty percent. Yeah, of course, they would.

Of course, they would be more than happy to sell their services at a discounted price and eat away at AppLovin's massive sixty-six percent free cash flow margin over the last trailing twelve-month period.

The long story short here is, I think we're going to hedge our bets a little bit and own a position in Unity Software for this outcome that AI creates this explosion in video game, mobile game creation, and Unity has a full flywheel.

They can use AI. Unity 7 is coming out later this year, where they can help publishers create games and then help publishers advertise games all in-house, creating that flywheel effect.

Here's the big one for Unity Software. Expense control, huge increase on them shoring up their expenses. And as a result, the free cash flow is very good once again. Here's the trend.

So robustly free cash flow positive and free cash flow is growing. That's fantastic.

Are we buying it at the absolute cheapest price we could have? No, obviously not. We passed a couple of times last year and neglected to look at it earlier this year. But if this continues to play out the way it appears it will be, we kind of think Unity could be a really nice complementary hedge position. That's how we're going to play it.