HSBC boosts Unity Software’s rating, predicting significant stock growth

On February 21, 2025, HSBC upgraded its rating of Unity Software shares from hold to buy following a strong earnings report. The investment firm raised its price target for the stock to $34, up from $20.70, indicating a potential upside of 21.4% based on the stock's previous close. This decision came after Unity’s shares rallied 30.4% during the trading session after their fourth-quarter results exceeded Wall Street's expectations. The company's adjusted earnings before interest, taxes, depreciation, and amortization reached $106 million on revenues of $457 million, surpassing analyst estimates significantly. Analyst Mohammed Khallouf highlighted the acceleration of Unity's momentum and pointed to a few key elements contributing to this upgrade. These elements included the promising performance of Unity's game engine, with a year-over-year revenue increase of 9% and a 6% quarter-over-quarter rise in the traditional create segment. Khallouf mentioned that Unity's new artificial intelligence-driven advertisement platform, Vector, and its plan to transition all customers by the end of 2025 reflect the company's strong trajectory. While recognizing the challenge Unity faces in the AdTech space, particularly from established players like AppLovin, the firm's position is viewed as significantly improved. The upgrade was strategically timed post-earnings, indicating HSBC's confidence in Unity's operational strategies and product offerings. With Unity's mobile gaming footprint and access to valuable first-party user data, the firm also believes there could be significant interest in the firm for mergers and acquisitions, further solidifying its market hold. The positive reception of Unity's stock, supplemented by a solid performance over the week and year-to-date gains of around 30.2% and 24.6% respectively, illustrates a bullish sentiment in the market. This reflects a broader trend in investor confidence based on management's efforts to mend previously strained relationships with gamers and improve sentiment toward its suite of offerings. In summary, HSBC’s bullish stance on Unity Software reflects a blend of positive earnings results, new product potential, and enhanced macroeconomic tailwinds. The upgrade shows analysts' belief that the company is on an upward trajectory, readying itself for future growth amidst a landscape of both competition and opportunity, ensuring its relevance in the evolving tech marketplace.