A recent announcement highlights that Unity's (U, Financial) Chief Technology Officer, who was instrumental in the Create segment, is stepping down for reasons not linked to the company's operations. Jefferies analyst Brent Thill reassures investors by stating that discussions with Unity's management indicate the ads segment will remain unaffected, with growth continuing under the leadership of Felix The, head of Vector.
Unity's management remains optimistic about their product development strategy and plans to fill the vacant CTO position in due time. Thill remains positive on Unity's trajectory, describing the CTO resignation as merely a "speed bump rather than a hump." The analyst upholds a Buy rating for Unity with a price target of $29.
Wall Street Analysts Forecast
Based on the one-year price targets offered by 23 analysts, the average target price for Unity Software Inc (U, Financial) is $25.60 with a high estimate of $31.50 and a low estimate of $17.00. The average target implies an downside of 1.70% from the current price of $26.04. More detailed estimate data can be found on the Unity Software Inc (U) Forecast page.
Based on the consensus recommendation from 29 brokerage firms, Unity Software Inc's (U, Financial) average brokerage recommendation is currently 2.2, indicating "Outperform" status. The rating scale ranges from 1 to 5, where 1 signifies Strong Buy, and 5 denotes Sell.
Based on GuruFocus estimates, the estimated GF Value for Unity Software Inc (U, Financial) in one year is $27.21, suggesting a upside of 4.49% from the current price of $26.04. GF Value is GuruFocus' estimate of the fair value that the stock should be traded at. It is calculated based on the historical multiples the stock has traded at previously, as well as past business growth and the future estimates of the business' performance. More detailed data can be found on the Unity Software Inc (U) Summary page.
U Key Business Developments
Release Date: May 07, 2025
- Revenue: Exceeded guidance by $20 million.
- Adjusted EBITDA: $84 million with 19% margins, $19 million above guidance.
- Grow Revenue: $285 million, down 4% year over year.
- Create Revenue: $150 million, down 8% year over year.
- Subscription Business: Nearly 80% of Create revenue, with double-digit year-over-year growth.
- Adjusted EPS: $0.24.
- Free Cash Flow: $7 million, an improvement of $22 million year over year.
- Cash and Debt: $1.5 billion in cash and $2.2 billion in debt.
- Guidance for Q2 Revenue: $415 million to $425 million.
- Guidance for Q2 Adjusted EBITDA: $70 million to $75 million.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Unity Software Inc (U, Financial) exceeded the high end of its guidance for revenue by 5% and adjusted EBITDA by 29% in the first quarter.
- The migration of the Unity ad network to the new AI platform, Unity Vector, was completed ahead of schedule, providing a 15% to 20% lift in installs and in-app purchases.
- Unity 6, the latest version of the Unity engine, has seen strong adoption with 43% of active users already upgraded, contributing to double-digit year-over-year growth in subscription revenues.
- The company has expanded its platform reach with Unity 6.1, supporting new platforms like Nintendo Switch 2 and Meta Quest, enhancing its position in AR and VR gaming.
- Unity Software Inc (U) continues to see strong demand beyond gaming, with new customers like Philips and Siemens using Unity for various industry applications, contributing to nine straight quarters of sequential revenue growth.
Negative Points
- Grow revenue in the first quarter was down 4% year over year, despite the rollout of Unity Vector.
- Create revenue decreased by 8% year over year due to a transition away from low-margin professional services.
- The full financial impact of the Vector-driven improvements is not expected to be visible until later quarters.
- R&D costs have increased by $10 million due to investments in Unity Vector, impacting short-term profitability.
- The company is facing internal competition between its ad products, which may lead to shifts in revenue allocation.
