Citizens upgrades Unity on strong growth potential from new ad platform

Investing.com -- Citizens has upgraded Unity Software (ETR:SOWGn) to "Market Outperform" from "Market Perform," citing its upcoming Vector advertising platform as a major growth driver in mobile gaming. The firm set a price target of $30, expecting Unity to capture a larger share of the $100 billion mobile gaming ad market.

Unity plans to fully launch Vector by mid-2025, which Citizens sees as a turning point for the company’s high-margin advertising business.

The platform is designed to improve ad targeting using artificial intelligence and data from Unity’s vast network of mobile games, which reaches 5 billion daily active users.

Advertising is a high-margin business, and Vector could significantly boost Unity’s earnings and cash flow. While the company is currently running two ad models, which has pressured margins, this burden should ease once Vector is fully operational.

Beyond gaming, Citizens sees long-term opportunities for Unity in eCommerce advertising, following the success of rival AppLovin (NASDAQ: APP) in the space. If Unity expands into eCommerce, it could reduce revenue fluctuations tied to the gaming market and further increase competition in its ad auctions.

The company has upgraded its game engines. Unity 6 adoption has been strong, with 38% of customers already upgrading. The company has also raised prices for its Pro and Enterprise tiers, which will gradually boost revenue as contracts renew through 2026.

Unity’s software is increasingly used in industries beyond gaming, such as automotive and retail. Revenue from these sectors grew 50% year-over-year last quarter, and Unity is exploring new pricing models that could further expand its earnings potential.

Unity shares last closed at $21.51. Citizens’ $30 price target is based on a valuation of 30 times its estimated 2026 EBITDA of $498 million. The firm believes the upcoming Vector launch, combined with Unity’s dominant position in game development, creates a strong upside potential for the stock.

While Citizens acknowledges that Unity has yet to prove its new ad platform can gain market share, it sees a favorable risk-reward balance, especially after the recent tech sector selloff.

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