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    Why Unity (U) Is Down 13.4% After Soft Q1 2026 Outlook and Leadership Changes

    Simply Wall St·02/19/2026 02:27:51
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    • Unity Software recently reported its fourth-quarter and full-year 2025 results, showing revenue rising to US$503.09 million for the quarter and US$1.85 billion for the year, while net losses and per-share losses narrowed compared with 2024.
    • Around the same time, Unity issued first-quarter 2026 revenue guidance of US$480 million to US$490 million, filed a US$508.27 million shelf registration for ESOP-related common stock, and announced board and accounting leadership changes that could influence how its financial and governance plans evolve.
    • Now we’ll examine how Unity’s softer first-quarter 2026 revenue guidance shapes the existing investment narrative built around AI and subscription growth.

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    Unity Software Investment Narrative Recap

    To own Unity today, you really need to believe its AI and subscription products can eventually turn a still-lossmaking engine into a durable, higher-margin platform across gaming and non-gaming markets. The softer Q1 2026 revenue guide of US$480 million to US$490 million adds uncertainty to that near-term revenue story, while the biggest risk remains high spending on AI and new products that has yet to translate into consistent profitability. If you see that trade-off as acceptable, the thesis is largely intact.

    The US$508.27 million shelf registration for 17.49 million ESOP-related shares stands out here, because it can gradually increase the share count at a time when Unity is still working toward profitability and the share price has been under pressure. That matters for a thesis built on future AI and subscription upside, since any earnings recovery will need to be weighed against potential dilution as these shares come into the market over time.

    Yet behind the AI upside story, there is a less obvious risk around rising competition and potential client churn that investors should be aware of...

    Read the full narrative on Unity Software (it's free!)

    Unity Software's narrative projects $2.3 billion revenue and $313.8 million earnings by 2028.

    Uncover how Unity Software's forecasts yield a $47.47 fair value, a 156% upside to its current price.

    Exploring Other Perspectives

    U 1-Year Stock Price Chart
    U 1-Year Stock Price Chart

    Some of the most optimistic analysts were expecting Unity’s revenue to grow about 11.4% annually toward roughly US$2.5 billion by 2028 and a swing from large losses to about US$311.7 million in earnings, but the softer Q1 2026 outlook and questions around heavy AI investment mean those bullish scenarios and the risk of client shifts to rival engines could look very different once forecasts catch up.

    Explore 10 other fair value estimates on Unity Software - why the stock might be worth just $20.04!

    Decide For Yourself

    Disagree with existing narratives? Extraordinary investment returns rarely come from following the herd, so go with your instincts.

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    This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.