Macquarie maintains Unity Software stock at Neutral with $24 target

On Thursday, Macquarie reiterated its Neutral rating on Unity Software (NYSE:U) with a maintained price target of $24.00. With analyst targets ranging from $19 to $34.45, and 8 analysts recently revising earnings estimates downward according to InvestingPro data, the stock presents a complex investment case. The firm’s analyst, Aaron Lee, highlighted Unity’s solid quarterly performance and its progress in the company’s transformation, particularly noting the advancements with Unity Vector. The migration of Unity’s ad network to Vector has been completed ahead of schedule, promising enhanced performance for customers. Although still in the initial stages, Vector has already shown a 15-20% improvement in installs and in-app purchase value. This transformation comes as Unity maintains a strong gross profit margin of 74.3% and operates with a moderate debt level, as revealed by InvestingPro analysis.

Unity Software reported first-quarter earnings that surpassed expectations, with an adjusted EBITDA of $84 million, a 7% increase year-over-year, exceeding both guidance and consensus estimates by 29%. Unity 6 has seen over 4.4 million downloads, with 43% of active users transitioning to the new version. Subscription revenues experienced double-digit growth year-over-year in the first quarter, driven by sustained momentum in the industry vertical.

Despite the positive developments, Macquarie remains cautious, citing the early phase of Vector’s deployment and potential short-term disruptions in financial metrics as legacy products are phased out. Unity has provided second-quarter revenue guidance of $415-425 million with an adjusted EBITDA forecast of $70-75 million, which is slightly below consensus due to anticipated short-term revenue impacts from the reallocation of resources. For deeper insights into Unity’s financial health and growth prospects, including exclusive Fair Value analysis and detailed financial metrics, explore the comprehensive research available on InvestingPro.

In other recent news, Unity Software reported a notable earnings beat for Q1 2025, with earnings per share (EPS) reaching $0.24, doubling the forecasted $0.12. The company also exceeded revenue expectations, bringing in $435 million compared to the anticipated $417.13 million. Despite these positive financial results, revenue in Unity’s Grow and Create segments declined year-over-year, presenting challenges in maintaining growth. New product launches, including Unity 6 and Vector AI, aim to bolster the company’s offerings, with Vector AI already showing a 15-20% improvement in installs and in-app purchases. Concerns remain regarding Unity’s high debt levels, which stand at $2.2 billion against $1.5 billion in cash, despite an improved free cash flow of $7 million. Analysts from Morgan Stanley (NYSE:MS) and UBS have shown interest in the impact of Vector AI on customer spend and the integration of Unity’s ad networks. Unity projects total revenue between $415 million and $425 million for Q2 2025, with expectations of the Grow business returning to revenue growth. The company plans to continue investing in its Vector AI platform, emphasizing the use of first-party data across its ecosystem.

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