Unity Software Inc

Design software stocks delivered a strong second quarter, with the six companies tracked beating revenue consensus estimates by 1.4% and issuing next-quarter guidance 2.9% above expectations. Procore Technologies reported revenues of $375.2 million, up 15.8% year on year, exceeding analysts' expectations by 2.6%, while Unity posted revenues of $546.5 million, up 23.9% year on year, outperforming expectations by 6.1%. PTC reported revenues of $600 million, down 6.8% year on year, falling short of expectations by 1.3%, and Adobe reported revenues of $6.62 billion, up 12.7% year on year, surpassing expectations by 2.6%. Cadence Design Systems reported revenues of $1.58 billion, up 24.2% year on year, beating expectations by 0.5%. Share prices of the group have risen 17.9% on average since the latest earnings results.

Unity reported second-quarter revenue of $546.5 million, beating analyst estimates of $515.1 million and growing 23.9% year over year, while adjusted EPS of $0.28 also topped expectations. Adjusted EBITDA came in at $160.2 million, above the $136.6 million consensus, and the company guided third-quarter EBITDA to $187.5 million at the midpoint, well ahead of the $152.2 million analysts had projected. During the earnings call, analysts from Morgan Stanley, Wells Fargo, BTIG, Cannonball, and Goldman Sachs pressed management on the feedback loop between Vector and Create, margin protection, model improvements, Unity 7 differentiation, and incremental margins. CEO Matthew Bromberg highlighted a 63% year-over-year increase in the Strategic Grow business and emphasized the role of runtime data and AI integration in driving growth.

Unity reported second-quarter fiscal 2026 revenue of $546.5 million, exceeding analyst estimates of $515.1 million and representing 23.9% year-on-year growth. Non-GAAP earnings per share came in at $0.28, beating the consensus of $0.25 by 12.4%, while adjusted EBITDA of $160.2 million topped expectations by 17.2%. Management attributed the strong performance to rapid adoption of its Vector AI-powered ad platform and a 63% year-over-year increase in its Strategic Grow business. The company also provided third-quarter EBITDA guidance of $187.5 million at the midpoint, above analyst forecasts of $152.2 million, and highlighted new strategic partnerships including one with Netflix to power its multi-platform gaming ecosystem.

Unity Software shares surged 5% in Friday pre-market trading, extending a 15% rally from Thursday, after its second-quarter earnings beat Wall Street expectations and triggered a wave of analyst upgrades. The company reported revenue of $546 million, up 24% year-over-year, and adjusted EBITDA of $160 million, a 29% margin that expanded 800 basis points year-over-year. Deutsche Bank, BofA Securities, HSBC, and Benchmark all upgraded the stock to Buy from Hold, with Deutsche Bank, BofA, and Benchmark setting price targets of $50, up from $31, $30, and no prior target, respectively. The upgrades centered on the performance of Unity's Vector advertising platform, which analysts view as entering a sustained growth cycle, with BofA analyst Omar Desspuky calling the quarter an inflection point and Deutsche Bank analyst Ben Black comparing Vector's compounding performance to AppLovin's AXON 2 launch. UBS analyst Stephen Ju maintained a Neutral rating but raised the price target to $48 from $32, citing earlier-than-expected runtime data integration, while cautioning that investor focus may shift back to long-term AI disintermediation risks and potential disruption from the upcoming Unity 7 engine transition in 2027.

SoundHound AI rallied 12%, Unity Software rose 11%, and Datadog sank 15% on Thursday as traders separated software winners from losers following earnings results. SoundHound surged after posting second-quarter revenue of $61.9 million, beating the $52.4 million consensus estimate, and raising full-year 2026 revenue guidance to $230 million to $260 million. Unity jumped after reporting second-quarter revenue of $546 million, up 24% year-over-year and above the $514.6 million consensus, with CEO Matt Bromberg calling it arguably the best quarter in Unity's history as a public company. Datadog dropped despite beating estimates with second-quarter revenue of $1.12 billion and non-GAAP earnings per share of $0.65, as its 108% year-to-date gains created valuation pressure. The Invesco QQQ Trust was roughly flat on the day, highlighting the stock-specific moves.

The Alliance for OpenUSD has added ByteDance, Huawei, Physicl, and Unity as General Members, expanding its reach into gaming, consumer XR platforms, and large-scale enterprise digital transformation. The organization has also begun the ISO certification process for Core Specification 1.1, the first step toward international standardization, and launched a GitHub repository to give developers direct input into the specification's evolution. OpenUSD is emerging as the 3D data layer for agentic AI workflows, with early implementations from Cesium, PTC, and NVIDIA demonstrating how AI agents can understand, navigate, and modify 3D environments built on the Core Specification. AOUSD and member companies including Pixar, NVIDIA, Autodesk, and Epic Games will present sessions at SIGGRAPH 2026 in Los Angeles from July 19 to 23.

Unity announced plans for Unity 7, its next-generation authoring platform, at Unite Seoul. The platform is designed for collaborative work among developers, artists, producers, and coding agents across the full development lifecycle, and will not require a traditional upgrade from Unity 6. Unity 7 is built on five core pillars: faster creation with a modernized CoreCLR core and up to 90% faster shader builds, an open ecosystem with a new CLI and public API, breakthrough graphics including realtime global illumination via Surface Cache GI, smarter growth and monetization through the Unity Vector AI engine and native direct-to-consumer IAP, and no breaking changes from Unity 6. The platform will enter early beta testing in December, with a full release scheduled for Q1 2027.

Raymond James initiated coverage of Unity Software with a Market Perform rating on June 29. The brokerage highlighted Unity's deeply embedded game engine across multiple platforms, supporting a long-term subscription revenue base, and noted the potential of its AI-driven advertising platform Vector to improve margins and competitiveness. Raymond James also sees growth opportunities in in-app commerce, cross-platform gaming, and industry subscriptions. Unity's strategic revenue grew 35% year-over-year in the first quarter, and the company forecasts 29% to 32% growth for the second quarter of 2026.

Unity Software has an average brokerage recommendation of 1.81, based on ratings from 26 analysts, with 15 Strong Buy and one Buy recommendation. The Zacks Rank for Unity Software is currently a Buy, supported by a 5.6% increase in the consensus earnings estimate for the current year over the past month. Investors are cautioned that brokerage recommendations may carry a positive bias and should not be the sole basis for investment decisions.

Zacks Investment Research has identified five technology stocks that have posted double-digit negative returns this year even as the Information Technology Select Sector SPDR, one of the 11 broad-sectors of the S&P 500 Index, is the best-performing sector with a return of 33.2% year to date. The five stocks, each carrying a Zacks Rank of 1 (Strong Buy) or 2 (Buy), are Palantir Technologies, Atlassian, Toast, Unity Software, and Roper Technologies. Palantir is expected to grow revenue and earnings by 71.8% and 98.7% respectively for the current year, while Atlassian's next-year estimates have been revised upward by 13.3% over the last 60 days. Toast and Unity Software also show strong growth projections, and Roper Technologies benefits from strength across its application and network software segments.