Unity Software (U) reported "better-than-expected" Q3 results and guidance and is set to continue its turnaround, with growth opportunities and improved efficiency in both the Create and Grow segments, Morgan Stanley said in a note Friday.
The analysts said this was the company's first full quarter under its new management team. After several quarters of declines, its ad business has stabilized, showing modest growth for the second consecutive quarter. In the Create business, there are signs of recovery, with sequential growth and a 6% year-over-year increase. On the Grow side, while the company's ad business has underperformed in the past, it is well-positioned with strong market and data advantages.
"Ultimately, we are bullish on the steps Unity Software's new management team is taking to turn the company around and see Q3 as a strong initial step on that path," the analysts added.
The analysts said they have increased their 2024/2025 earnings before interest, taxes, depreciation, and amortization forecasts by 3% due to the company's stronger-than-expected Q3 results and Q4 outlook. Revenue growth expectations have been modestly raised, reflecting better operating leverage shown this quarter.
Morgan Stanley raised Unity Software's price target to $24 from $22 while keeping its overweight rating.
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