Needham has trimmed its 12-month price target for Unity Software (NYSE: U) to $35.00 from $50.00, while preserving a Buy recommendation on the shares. The firm said the primary driver of the cut was a reduced target multiple, even as Unity’s Vector product has shown strong sequential momentum.
Unity shares are trading at $21.41, down 51.53% year-to-date and materially beneath a 52-week high of $52.15. The research note highlighted Vector’s performance as a key positive, describing double-digit sequential growth with the firm expecting that momentum to persist through 2026. Needham further suggested that Vector alone would likely cover the current enterprise value of Unity in a sum-of-the-parts framework, though it acknowledged the difficulty of performing such analysis in a bear market.
Despite Vector’s progress, Needham pointed to a lower valuation multiple as the reason for the reduced price target. Unity reported total revenue of $1.85 billion and modest growth of 2.01% over the past twelve months. The company remains unprofitable on a GAAP EPS basis, recording an EPS of -$0.96; however, analysts tracked by InvestingPro forecast a swing to profitability in the current fiscal year with an EPS estimate of $0.89.
The firm also adjusted its assumptions for the Grow segment only slightly for 2026 and 2027, while explicitly assuming that Unity will be sunsetting its ironSource ad network. That decision to shut down the ironSource operation has contributed to downward pressure on some analysts' models.
Quarterly results and guidance
Unity reported fourth-quarter 2025 results that beat consensus, posting a 14.29% surprise on earnings per share and a 2.89% positive variance on revenue versus forecasts. Revenue and EBITDA for the quarter exceeded consensus expectations by 2% and 6%, respectively. Despite those beats, the company provided guidance for the first quarter of 2026 that came in below market expectations, a factor cited by analysts that contributed to subsequent target cuts.
The Vector platform itself expanded 15% quarter-over-quarter, a gain that, while robust, fell short of some buy-side expectations which were looking for 20% or greater sequential growth.
Peer analyst moves
The market reaction from other brokerages has been mixed but generally cautious. BTIG lowered its target to $41 while keeping a Buy rating, citing the ironSource shutdown as an influence. Jefferies and Barclays trimmed their price targets to $30 and $28, respectively, maintaining Buy and Equalweight recommendations. Citizens reduced its objective to $37 after noting mixed fourth-quarter results where revenue and EBITDA beat guidance but forward projections disappointed.
Takeaways
- Needham reduced its target to $35 from $50, citing a lower valuation multiple despite Vector's positive execution.
- Unity’s fiscal profile remains mixed: recent quarterly beats on EPS and revenue were paired with softer guidance for Q1 2026 and a decision to wind down ironSource.
- Several other brokerages have cut price targets while keeping a range of ratings, reflecting continued analyst uncertainty about near-term growth and valuation.
These developments leave investors weighing Vector's growth trajectory and potential value contribution against a backdrop of near-term guidance shortfalls and strategic shifts in Unity’s ad operations.