Image Source: Pixabay

Investors are cheering Unity Software Inc (NYSE: U) today after the video game software development firm posted a better-than-expected Q3 and raised its guidance for the full year.

The new investors seem excited as the company’s management struck an optimistic tone in the earnings release – citing “meaningful outperformance” and improved cost discipline.

Beneath the strong headline numbers, however, there were three concerning signals that could hurt Unity stock’s momentum over the longer term.

GAAP losses could weigh on Unity stock

Unity remains deeply unprofitable on a GAAP basis, and that’s seldom encouraging for long-term investors.

The company lost $127 million in Q3 – nearly identical to last year’s $125 million shortfall.

This means that while adjusted metrics show improvement, the company’s core expenses continue to outpace revenue growth.

And yes – some of it sure is related to Unity’s aggressive push into artificial intelligence (AI) and platform expansion.

But persistent losses, nonetheless, raise questions about scalability and margin durability.

For long-term investors, the inability to generate GAAP profits, even amid strong top-line growth, signals Unity’s business model still lacks operational leverage, which could prove an overhang for U stock.

U shares are trading at a stretched valuation

Unity shares are trading at a price-to-sales (P/S) ratio of a little under 9 – a premium multiple even by software standards.

Such an elevated valuation multiple might be tolerable for a high-growth disruptor.

However, U’s annual revenue growth has slowed to mid-single digits.

In fact, its cumulative revenue for the first three quarters stands at $1.34 billion this year compared to $1.35 billion in 2024 – suggesting the company’s growth narrative is struggling to gain traction.

In short, with competition intensifying across gaming, ad tech, and real-time 3D platforms, Unity’s ability to sustain premium pricing power is uncertain.

At current levels, U shares embed aggressive assumptions about future monetisation and margin expansion – assumptions that may not hold if growth continues to moderate.

Insiders have been unloading Unity Software

Another major red flag on Unity stock is insider selling. Since Aug. 2025, insiders have unloaded millions of dollars’ worth of it – cashing in the post-Q2 earnings rally.

Notably, directors Tomer Bar-Zeev and David Helgason sold substantial blocks while shares traded between $38 and $46.

In fact, insiders haven’t recorded even a single buy transaction in the trailing 12 months.  

While insider sales aren’t inherently bearish, the timing and scale of these transactions in the case of U stock raise eyebrows.

Selling into strength following a positive earnings surprise can suggest internal scepticism about sustaining momentum.

For investors, such a disposition may reflect a lack of conviction in the upward trajectory, especially when paired with elevated valuation and ongoing GAAP losses.

It’s a cautionary signal that must not be ignored when evaluating whether Unity shares are worth owning heading into 2026.

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