Core Insights - Unity Software reported a strong third quarter, exceeding both revenue and earnings expectations, marking a significant recovery from its poor performance in Q1 of the same year [1] Financial Performance - The company demonstrated a dramatic turnaround in its financial results compared to Q1, which was characterized by disappointing outcomes [1]

Revenue Performance - Total revenue for the three months ended September 30, 2025, was $470.6 million, an increase from $446.5 million in the same period of 2024, while total revenue for the nine months ended September 30, 2025, decreased to $1.35 billion from $1.36 billion in 2024[94][100]. - The dollar-based net expansion rate increased to 103% as of September 30, 2025, compared to 94% in the prior year, driven by subscription revenue growth and existing customers upgrading to enterprise offerings[90]. - The company had 1,338 customers contributing more than $100,000 of revenue in the trailing 12 months as of September 30, 2025, up from 1,242 in 2024, indicating growth in subscription revenue and increased advertising spend[88]. - Create Solutions revenue for the three months ended September 30, 2025, was $152.4 million, slightly up from $147.4 million in 2024, while Grow Solutions revenue increased to $318.3 million from $299.1 million[98]. - The company expects revenue associated with its non-strategic portfolio to decline further, with approximately $24 million in revenue for the nine months ended September 30, 2025, compared to $75 million in 2024[98]. Expenses and Cost Management - Research and development expenses for the three months ended September 30, 2025, were $244.4 million, up from $215.2 million in 2024, primarily due to increased amortization costs[110]. - Operating expenses for the nine months ended September 30, 2025, totaled $1.37 billion, a decrease from $1.62 billion in 2024, reflecting workforce reductions and restructuring efforts[94][107]. - Sales and marketing expenses for the three and nine months ended September 30, 2025 decreased compared to the prior year due to a reduction in personnel costs from headcount reductions[112]. - General and administrative expenses for the three months ended September 30, 2025 decreased moderately compared to the prior year, driven by cost discipline and reductions in personnel-related costs[114]. - The company incurred approximately $23 million in employee separation costs and $16 million in non-employee charges related to workforce reductions in the nine months ended September 30, 2025[87][107]. Profitability Metrics - The gross profit margin for the three months ended September 30, 2025, was 74%, down from 75% in 2024, while the gross profit margin for the nine months was also 74%, compared to 73% in the prior year[94]. - Adjusted gross profit for the three months ended September 30, 2025 was $388.4 million, compared to $374.4 million in 2024, with adjusted gross margin at 82%[126]. - Adjusted EBITDA for the three months ended September 30, 2025 was $109.5 million, compared to $91.7 million in 2024[126]. Cash Flow and Financial Position - Free cash flow for the nine months ended September 30, 2025 was $285.2 million, an increase from $180.3 million in 2024[130]. - As of September 30, 2025, the company had cash and cash equivalents totaling $1.9 billion, primarily for working capital purposes[131]. - Net cash provided by operating activities for the nine months ended September 30, 2025, was $301,520,000, an increase from $203,361,000 in 2024[137]. - Net cash used in investing activities during the same period was $(18,271,000), a decrease from $(35,967,000) in 2024[137]. - Net cash provided by financing activities was $76,113,000, compared to $(357,697,000) in the previous year[137]. - The net change in cash, cash equivalents, and restricted cash for the nine months ended September 30, 2025, was $381,207,000, a significant improvement from $(188,299,000) in 2024[137]. - The decrease in net loss contributed to the increase in cash provided by operating activities, adjusted for non-cash items[138]. - Cash used in investing activities primarily consisted of purchases of property and equipment and non-marketable investments[139]. - Financing activities included proceeds from the issuance of convertible notes and common stock under employee equity plans[140]. Tax and Interest - Interest expense for the three and nine months ended September 30, 2025 increased due to the amortization of new debt issuance costs from the issuance of the 2030 notes[115]. - Interest income and other income (expense), net, for the three months ended September 30, 2025 decreased primarily due to losses from foreign exchange, with a recognized gain of $61.4 million in Q1 2024 compared to $42.7 million in Q1 2025[117]. - Provision for income taxes for the three and nine months ended September 30, 2025 increased due to higher earnings in foreign jurisdictions and the absence of a tax benefit recognized in Q1 2024[120]. Strategic Focus - The company has begun to reset its product and service offerings to focus on its core businesses, referred to as the "Strategic Portfolio," which includes the Unity Engine and related consumption services[86]. - There have been no material changes to critical accounting policies and estimates since the last annual report[142]. - Market risk exposure assessment has not changed materially since the previous annual report[143].

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Revenue Performance - Revenue for Q3 2025 was $471 million, representing a 5% increase year-over-year from $447 million in Q3 2024[7] - Create Solutions revenue was $152 million, up 3% year-over-year, driven by strong subscription growth[4] - Grow Solutions revenue reached $318 million, a 6% increase year-over-year, primarily due to the performance of the Unity Ad Network[5] - Revenue for Q3 2025 was $470.6 million, an increase from $446.5 million in Q3 2024, while revenue for the nine months ended September 30, 2025, was $1.35 billion, slightly down from $1.36 billion in the same period of 2024[28] - The company expects Q4 2025 revenue to be between $480 million and $490 million[11] - In Q4, the company anticipates mid-single digit sequential revenue growth in Grow and high-single digit year-over-year growth in Create[14] Profitability Metrics - Adjusted EBITDA for the quarter was $109 million, with a margin of 23%, compared to $92 million and a margin of 21% in Q3 2024[9] - Adjusted EBITDA for Q3 2025 was $109.5 million, representing an adjusted EBITDA margin of 23%, compared to $91.7 million and a margin of 21% in Q3 2024[28] - GAAP net loss for Q3 2025 was $126.8 million, with a net loss margin of 27%, compared to a net loss of $124.5 million and a margin of 28% in Q3 2024[28] - Basic and diluted net loss per share was $0.30, compared to $0.31 for the same period in 2024[6] - Adjusted EPS for Q3 2025 was $0.20, up from $0.19 in Q3 2024, reflecting a 5.3% increase[32] Cash Flow and Operating Activities - Net cash provided by operating activities was $155 million, up from $122 million in Q3 2024[8] - Free cash flow for the quarter was $151 million, compared to $115 million in Q3 2024[9] - Free cash flow for Q3 2025 was $151.3 million, compared to $115.2 million in Q3 2024, representing a 31.3% increase[32] - Net cash provided by operating activities for the nine months ended September 30, 2025, was $301.5 million, up from $203.4 million in the same period of 2024[32] Expenses and Cost Management - GAAP research and development expense for Q3 2025 was $244.4 million, accounting for 52% of revenue, while adjusted research and development expense was $138.7 million, or 30% of revenue[30] - GAAP sales and marketing expense for Q3 2025 was $165.9 million, representing 35% of revenue, while adjusted sales and marketing expense was $100.7 million, or 21% of revenue[30] - GAAP general and administrative expense for Q3 2025 was $65.9 million, accounting for 14% of revenue, while adjusted general and administrative expense was $39.5 million, or 8% of revenue[30] - Stock-based compensation expense for Q3 2025 was $91.6 million, down from $105.3 million in Q3 2024[28] - Amortization of intangible assets expense for Q3 2025 was $125.3 million, compared to $88.5 million in Q3 2024[28] - The company is managing costs effectively to drive improvements in operating margins over time[33] Strategic Initiatives and Future Outlook - Unity expects to enhance its platform and accelerate product innovation, particularly with the upcoming launch of Unity 6.3[33] - The company is focusing on artificial intelligence tools as part of its strategic initiatives[33] - Unity anticipates multi-year growth of its product portfolio, leveraging behavioral data through Unity Runtime[33] - The company reported a total impact on diluted net loss per share from non-GAAP adjustments of $1.42 for the nine months ended September 30, 2025[32] - Unity's weighted-average common shares used in GAAP diluted net loss per share increased to 424.3 million in Q3 2025 from 398.8 million in Q3 2024[32]

Core Viewpoint - The article compiles significant research calls from Wall Street, highlighting upgrades for various companies based on their recent performance and outlook. Group 1: Company Upgrades - Jefferies upgraded Apple (AAPL) to Hold from Underperform with a price target of $246.99, up from $203.07, after September quarter revenue grew about 8% and gross margin came in at 47.2%, or about 0.5% better than expected including a $1.1B tariff [2] - Goldman Sachs upgraded Roblox (RBLX) to Buy from Neutral with a price target of $180, up from $155, following the Q3 earnings report, citing strength in bookings, revenue, and daily active user growth, with management optimistic about long-term scaling [2] - BTIG upgraded Unity (U) to Neutral from Sell and removed the prior $27 price target, noting healthy spending trends based on recent surveys of gaming and non-advertising professionals [2] - Piper Sandler upgraded Hershey (HSY) to Neutral from Underweight with an unchanged price target of $167, highlighting the company's plans to be "on-algorithm" in 2026 for better visibility [2] - Stifel upgraded Idexx Laboratories (IDXX) to Buy from Hold with a price target of $700, up from $640, expecting accelerated recurring revenue growth in the Companion Animal Group [2]

Core Industry Trends - Software stocks are benefiting from the digitalization wave and strong adoption of AI, including generative AI and Agentic AI [1] - The proliferation of SaaS, migration to cloud platforms, and demand for hybrid work solutions are major tailwinds for software companies [1] - Increased customer-centric approaches and subscription-based models are driving recurring revenues and affordability for small and medium-sized businesses [5] Factors Supporting Software Stocks - The rise of AI-powered applications in various sectors, including voice recognition and telemedicine, is positively impacting software companies [2] - The adoption of cloud-based services, IoT, AR/VR devices, and 5G deployment is aiding software stock performance [3] - Rising cyber threats are prompting enterprises to invest more in cloud-based security solutions, shifting preference towards software-defined models [4] Company-Specific Insights - CoreWeave is expected to report revenues between $1.26 billion and $1.3 billion, with a year-over-year revenue increase of 207% and a backlog of $30.1 billion [8][9] - BILL Holdings anticipates first-quarter revenues of $390.6 million, reflecting a 9% year-over-year increase, while earnings are projected to decline by 19.1% [11] - Affirm Holdings expects first-quarter revenues of $885 million, indicating a 26.7% year-over-year growth, with earnings per share improving from a loss of 31 cents to a profit of 11 cents [14][15] - Unity Software forecasts revenues of $447.6 million for the third quarter, with a slight year-over-year growth of 0.2% and an expected earnings per share improvement from a loss of 31 cents [17] Strategic Developments - CoreWeave is capitalizing on the generative AI boom, focusing on scaling capacity and enhancing services to drive strong momentum [10] - BILL is leveraging AI to enhance its solutions for SMBs and is integrating generative AI to improve customer experience [12][13] - Affirm is expanding its partnerships and entering new markets, including the U.K. and Western Europe, to drive growth [16] - Unity Software is transitioning its product mix towards the AI-powered Unity Vector platform, which is expected to deliver long-term value despite short-term revenue friction [18][19]

Core Insights - The technology sector, particularly companies like AMD and Unity Software, is poised for growth driven by artificial intelligence (AI) advancements and infrastructure spending [2][4]. Group 1: Advanced Micro Devices (AMD) - AMD has a diversified portfolio of chips catering to data centers, gaming consoles, PCs, and AI workloads, with a stock increase of 90% in 2025 [4]. - The company is well-positioned to capture growth in the data center market, with major AI companies like Microsoft and Tesla utilizing its chips [4][6]. - Analysts project AMD's earnings to increase by 59% next year, supported by its new Instinct GPUs for data centers [6][4]. Group 2: Unity Software - Unity Software powers about 70% of the top mobile games, indicating its strong market presence in game design [7]. - The company is leveraging valuable user data to enhance its AI-powered advertising tool, Unity Vector, which has improved user acquisition by 15% to 20% [9][10]. - Analysts expect Unity to return to double-digit percentage growth in 2026 after a period of flat revenue performance [10].

Core Insights - Unity has announced the general availability of Android XR support in Unity 6, enhancing the platform for developers to reach new audiences and platforms with their games and apps [1] Group 1: Product Development - The integration of Android XR tools into Unity 6 was achieved through close collaboration with Google and Samsung [1] - The tools were verified with developers in real production environments prior to the launch, ensuring reliability and effectiveness [1]

Core Insights - Unity Software Inc (NYSE:U) has seen its stock price increase by 65% this year, but it has recently faced a 20% decline in the past month due to pressures in the tech sector [1] - The stock trades at a high valuation of nearly 130 times forward earnings and 8.97 times trailing-year sales, which is more than double its valuation from a year ago [2] - Technical analysis suggests a bearish head-and-shoulders pattern, indicating a potential drop to a support level around $24 [3] Quantitative Analysis - The quantitative approach evaluates U stock using mathematical models and data, distinguishing it from fundamental and technical analyses that are often subjective [6][7] - Projected 10-week returns indicate a price clustering around $36.40, with a profitability rate of 51% at the tenth week [8] - Under current conditions, U stock has shown a 4-6-D sequence, indicating four up weeks and six down weeks, with an overall downward trend [9] Price Density Zones - The analysis identifies two price density zones under 4-6-D conditions, approximately $36.70 and $40.50, both above the expected clustering price of $36.40 [10][11] - The exceedance ratio at the tenth week is projected to reach 63.2%, suggesting a favorable risk-reward scenario despite potential downside risks [11] Trading Strategy - A bullish trading strategy involving a 37/40 bull call spread is proposed, which could yield a maximum payout of 140% if the stock rises above $40 at expiration [14] - The breakeven point for this trade is set at $38.25, with empirical data supporting price clustering above $40 [14][15]

Core Insights - The article highlights three companies that are expected to grow significantly in the long term despite being undervalued in the current market environment Group 1: Unity Software - Unity Software is experiencing a return to strong growth after a period of stagnation, with shares still 82% below their previous peak [2][3] - The company is a leading provider of software for video game developers, particularly in mobile gaming, and its AI-powered advertising platform, Unity Vector, is driving growth in its ad network [3][4] - Unity reported a slight year-over-year decline in total revenue in Q2 but is expected to return to growth by 2026, with free cash flow projected to grow at an annualized rate of 25% [3][6] - The company has seen double-digit growth in subscriptions for its game development software and has expanded into non-gaming markets, including partnerships with automakers like BMW [5] Group 2: Roku - Roku's shares fell sharply in 2021 due to a slowdown in the advertising market but have since rebounded, although they still trade 80% below their all-time high [7][8] - The company has a strong competitive position in the streaming market, with nearly 90 million user accounts as of the end of 2024, representing a 12% increase from Q4 2023 [9] - Roku's platform revenue grew 18% year-over-year in Q2 2025, driven by a large and growing audience, and the connected-TV advertising market is expected to grow from $29 billion in 2024 to $38 billion in 2027 [10] Group 3: Fiverr International - Fiverr International's shares are trading 93% below their previous high, yet the company continues to increase free cash flow and focus on AI initiatives [12] - Despite economic volatility affecting the gig economy, Fiverr reported a 15% year-over-year revenue increase in Q2, with strong demand for AI-related services, particularly a 37% increase in demand for AI consultants [13][14] - The recent launch of its AI-powered Shopify Store Builder contributed to an 84% year-over-year increase in services revenue, and the stock is trading at a low price-to-free cash flow multiple of 9, indicating a potential bargain for investors [15][16]