Unity Software Q2 Results: Morgan Stanley Raises PT to $40

Unity Software Inc. (U) reported Q2 2025 results with revenue exceeding guidance by $16 million and adjusted EBITDA reaching $90 million, exceeding expectations by $15 million. Morgan Stanley raised its price target from $25 to $40, maintaining an 'Overweight' rating and increasing FY26 and FY27 EBITDA forecasts by 8% and 19%, respectively. The company's partnerships with major automakers and gaming companies contributed to its growth beyond the gaming sector.

Unity Software Inc. (U), the leading platform for creating and growing games and interactive experiences, has reported its second-quarter 2025 financial results, exceeding expectations and guidance. The company announced revenue of $441 million, up 2% year-over-year, and adjusted EBITDA of $90 million, surpassing expectations by $15 million. This performance has led Morgan Stanley to raise its price target from $25 to $40, maintaining an 'Overweight' rating and increasing its FY26 and FY27 EBITDA forecasts by 8% and 19%, respectively.

The report highlights a significant growth in the Unity Ad Network, which grew 15% quarter-over-quarter, now representing 49% of total Grow Solutions revenue. This growth was offset by declines in select other Ads products, resulting in a 4% year-over-year decrease in Grow Solutions revenue. Meanwhile, Create Solutions revenue increased by 2%, primarily driven by the sale of a term license for approximately $12 million and increases in subscription revenue.

Despite the overall positive financial performance, Unity reported a net loss of $107 million for the quarter, compared to $126 million in the second quarter of 2024. The net loss margin was (24)%, down from (28)% in the previous year. However, the company's cash position has improved, with net cash provided by operating activities increasing to $133 million, up from $88 million in the second quarter of 2024.

Looking ahead, Unity expects third-quarter revenue of $440 million to $450 million, with mid-single digit sequential revenue growth in Grow Solutions and a slight sequential decline in Create Solutions. The company also expects third-quarter adjusted EBITDA of $90 million to $95 million.

Unity's partnerships with major automakers and gaming companies have contributed to its growth beyond the gaming sector, positioning the company for continued expansion and innovation.

References:
[1] https://investors.unity.com/news/news-details/2025/Unity-Reports-Second-Quarter-2025-Financial-Results/default.aspx