Benchmark has chosen to maintain a Hold on Unity Software (NYSE:U) after the company posted fourth-quarter results that surpassed expectations. Unity shares are trading at $20.22, which represents a decline of more than 51% year-to-date and sits roughly 61% below the stock's 52-week high of $52.15. InvestingPro analysis cited in the company report indicates Unity appears undervalued versus its Fair Value estimate.
For the quarter, Unity reported revenue of $503 million, up 10% from the year-ago period and ahead of the consensus figure of $492.8 million. Adjusted EBITDA for the period came in at $125 million, a 25% margin, topping the consensus adjusted EBITDA estimate of $117.8 million. Those results contrast with Unity's trailing twelve-month picture, where the company has an EBITDA of -$10.44 million and a diluted EPS of -$0.96, indicating it has not been profitable over the last year.
Despite the positive headline numbers, Unity's guidance for the upcoming quarter points to a material reset. Management guided first-quarter revenue to a range of $480 million to $490 million, a band that matches the prior guidance range given for the fourth quarter even though actual fourth-quarter revenue exceeded that range. The company also expects first-quarter adjusted EBITDA between $105 million and $110 million, which sits below both the fourth-quarter actual adjusted EBITDA and the originally guided figure for the fourth quarter.
Market analysts remain mixed but slightly biased toward optimism. The consensus recommendation stands at 1.85, which the report notes is closer to Buy than Hold. Price targets among analysts span a wide range from $18 up to $55, implying varying views on valuation and the company’s prospects. InvestingPro is also referenced for additional analysis, offering eight more tips about Unity’s financial outlook.
Benchmark’s reiteration of Hold rested heavily on concerns about Unity’s Vector platform. The firm expects Vector growth to moderate to about 10% sequentially after three quarters of mid-teens quarter-over-quarter increases. Benchmark described this anticipated deceleration as difficult to reconcile given how early the platform is in its lifecycle. The firm also pushed back on Unity’s positioning as a leader of the AI revolution, arguing that Unity remains embedded in a legacy development and ad tech stack that could be exposed to disruption from frontier AI models that change how creation and monetization function.
The company’s fourth-quarter results for 2025 were characterized as mixed across other market commentary. Unity reported revenue and adjusted EBITDA that exceeded the high end of guidance by $13 million and $10 million respectively. Nevertheless, the company’s guidance for the first quarter of 2026 fell short of market expectations, with projected revenue and EBITDA trailing consensus by 1.5% and 8% respectively.
Following these updates, several research firms adjusted their price targets. Needham reduced its target to $35, citing positive traction for Vector but applying a lower multiple. Jefferies lowered its target to $30 and pointed to Grow revenue that rose 6% quarter-over-quarter but still missed more optimistic growth assumptions. Barclays set a $28 target, acknowledging that while revenue and EBITDA beat consensus, the guidance was slightly below what markets expected. Citizens trimmed its target to $37 but kept a Market Outperform rating. BTIG moved its target down to $41, referencing Unity’s decision to wind down the ironSource ad operation even as fourth-quarter strategic revenue landed in line with expectations.
Benchmark’s decision to sustain a Hold rating, set against a quarter that beat immediate expectations, underscores the tension between short-term execution and forward-looking visibility. The company’s Q4 beats did not translate into a more bullish near-term outlook from management, and analysts are left to weigh a mix of product momentum signals and guidance that implies a pause or reset.
Key points
- Unity beat fourth-quarter revenue and adjusted EBITDA estimates, reporting $503 million in revenue and $125 million in adjusted EBITDA.
- Management’s first-quarter guidance signals a reset, with revenue guided to $480 million to $490 million and adjusted EBITDA to $105 million to $110 million.
- Benchmark is concerned about a slowdown in Vector sequential growth and questions Unity’s positioning as an AI leader amid potential disruption to legacy development and ad tech stacks.
Sectors impacted
- Gaming and interactive development platforms
- Ad tech and digital monetization
- Software and AI-enabled content creation tools
Risks and uncertainties
- Decelerating Vector growth - expected moderation to approximately 10% sequential growth after prior mid-teens gains could affect revenue momentum in the platform business.
- Guidance shortfall - management’s Q1 guidance for revenue and adjusted EBITDA is below fourth-quarter actuals and original guidance, introducing uncertainty for near-term earnings expectations.
- Exposure to AI disruption - Benchmark flagged that Unity’s legacy development and ad tech positioning may be vulnerable as frontier AI models change creation and monetization dynamics.
Analyst landscape
Analysts’ price targets now range from $18 to $55, reflecting divergent views on Unity’s growth trajectory and valuation. The consensus rating is 1.85, nearer to Buy than Hold. Several firms adjusted targets after the quarter: Needham to $35, Jefferies to $30, Barclays to $28, Citizens to $37 while maintaining Market Outperform, and BTIG to $41 following the company’s ironSource ad operation shutdown.
Note: InvestingPro cited Unity as appearing undervalued relative to a Fair Value estimate and is reported to provide eight additional tips on Unity’s financial outlook.