Jefferies raises Unity Software stock price target to $40 on ad growth

Unity Software (NYSE:U) significantly outperformed Q2 2025 analyst expectations, reporting EPS of $0.18 and revenue of $441 million. Following these results, Jefferies raised its price target to $40 while maintaining a Buy rating, citing validated momentum in its Vector platform, strong Unity Ads growth contributing 49% to the Grow segment, and positive Q3 guidance. The firm underscored Unity's trajectory as being in the early stages of a multi-quarter build-out, bolstered by upcoming developments like the Unity 6.2 framework for ad targeting.

Analysis

Unity Software (NYSE:U) has demonstrated significant operational momentum, underscored by its second-quarter 2025 financial results which materially surpassed analyst expectations. The company reported earnings per share of $0.18, a 38.46% beat over the $0.13 consensus, on revenue of $441 million, which exceeded forecasts by $14.2 million. This outperformance prompted Jefferies to reiterate a Buy rating and increase its price target to $40.00 from $35.00. The firm's confidence is rooted in tangible growth drivers, particularly the 15% quarter-over-quarter expansion of Unity Ads, which now accounts for 49% of the company's Grow segment. Further bolstering the outlook is management's guidance for double-digit percentage growth in Unity Ads for the third quarter and positive initial performance commentary for July and August. While the results may not have satisfied the most aggressive market expectations, the narrative points to a company in the early phases of a multi-quarter improvement cycle, with a future catalyst in the Unity 6.2 framework expected to unlock runtime data for ad targeting in 2026.

Key Decisions for Investors

• Given the strong Q2 earnings beat and upwardly revised analyst price target, investors may view this as a validation of Unity's growth strategy, warranting consideration to initiate or add to long positions.
• Investors should closely monitor the performance of the Unity Ads business in subsequent quarters, as its 15% sequential growth and contribution to the Grow segment are the primary drivers of the current bullish thesis.
• The reference to a 'multi-quarter build-out' and a 2026 catalyst suggests that a long-term investment horizon is appropriate, and investors should be prepared for gradual progress rather than immediate realization of the full price target.