Unity Software Inc (NYSE:U) shares moved higher on Friday after analysts at Wedbush and Bank of America raised their outlooks for the company, citing stronger-than-expected growth in its Vector advertising platform and the potential for further gains from the integration of runtime data.
Shares were up about 4% at $43 in Friday trading.
Wedbush raised its price target on Unity to $50 from $36 while reiterating its ‘Outperform’ rating. The firm wrote that the company’s “flywheel is beginning to turn,” pointing to accelerating growth in Vector and a business mix increasingly focused on the platform and Unity’s core game engine following the sunset of the ironSource Ad Network and the sale of Supersonic.
Unity reported second quarter revenue of $546 million, up 24% year over year and 8% sequentially. The result exceeded the firm’s $510 million estimate, the $515 million consensus estimate and Unity’s guidance range of $505 million to $515 million.
Strategic revenue, which excludes ironSource and Supersonic, increased 38% year over year to $486 million. Strategic Grow revenue rose 63% to $329 million, while Strategic Create revenue increased 5% to $157 million.
Adjusted EBITDA increased 77% year over year to $160 million, above Wedbush’s $132 million estimate, while non-GAAP earnings of $0.28 per share exceeded consensus of $0.25. Free cash flow increased to $202 million from $127 million a year earlier, and Unity ended the quarter with $2.4 billion in cash.
Wedbush highlighted 20 major Vector updates released during the quarter, including the incorporation of runtime data and a shift to Day-28 return on ad spend, or ROAS, from seven days previously. The firm wrote that the change drove a threefold sequential increase in user-acquisition spending.
For the third quarter, Unity guided to strategic revenue of $540 million to $550 million, including Strategic Grow revenue of $380 million to $385 million. Adjusted EBITDA is expected at $185 million to $190 million.
Wedbush wrote that the contribution from runtime data should become more significant in the second half of the year and beyond, prompting the firm to raise its longer-term estimates. It now expects fiscal 2028 adjusted EBITDA of $1.35 billion, compared with its previous estimate of $915 million.
Bank of America also upgraded Unity to ‘Buy’ from ‘Neutral’ and raised its price objective to $50 from $30. The firm wrote that the latest results provide an early indication that runtime data is improving the effectiveness of Vector’s targeting model and could support sustained growth through the end of 2027.
Bank of America noted that Vector revenue increased 23% sequentially in the second quarter, with growth benefiting from the rollout of the Day-28 ROAS product and the integration of runtime data.
The firm expects Vector to maintain sequential growth of more than 20% in both the third and fourth quarters, compared with its previous expectations for a more gradual slowdown. Bank of America wrote that Unity’s third-quarter guidance could prove conservative because it does not reflect an acceleration despite a full quarter of runtime data contribution.
Bank of America raised its 2027 adjusted EBITDA estimate to $1.29 billion from $789 million, based on continued growth in Vector and further expansion of the runtime data set. The firm wrote that additional success with runtime data could provide further upside to its estimates.