UBS Raises Unity Software Target to $28, Lowers AppLovin Target to $716

Overview

This report, issued by UBS, focuses on the performance and future outlook of the mobile gaming advertising industry in Q1 2026. It provides a detailed analysis of AppLovin Corp and Unity Software Inc in terms of ad spend return on investment (ROAS) and adjusts their financial forecasts and target prices. Although the Middle East conflict has had some impact on ad budgets, the overall effect remains limited. The report also discusses the potential threats posed by AI technology to the advertising sector and corresponding mitigation strategies.

Core views

Demand Side: In Q1 2026, the mobile gaming advertising market performed steadily, with ROAS (Return on Ad Spend) emerging as a key driver. AppLovin Corp’s Axon 2.0 engine delivered robust ROAS, helping it expand market share; however, the full-scale launch of its non-core advertising products has been postponed until the second half of 2026. Unity Software Inc’s Vector engine has also made notable progress, but growth may remain moderate in the short term. Supply Side: The report notes that major platforms such as Google and Meta have shown waning interest in the gaming advertising market, which benefits smaller and mid-sized ad platforms. Despite competitive pressures, these smaller players can maintain competitiveness through technological upgrades. Valuation Perspective: Based on revised financial forecasts, UBS lowered AppLovin Corp’s target price from $740 to $716 while raising Unity Software Inc’s target price from $26 to $28. These adjustments primarily reflect differing expectations for future ad revenue growth. Long-Term Prospects: Although AI technology may pose certain risks to the advertising industry, the report believes its short-term impact will be limited. Both AppLovin and Unity Software are expected to mitigate potential disruptions through technological innovation.

Analysis framework

UBS assessed the current state and future trends of the mobile gaming advertising industry through in-depth interviews with advertising experts and analysis of real-world data. The specific steps included: 1. Collecting and analyzing feedback from advertisers, with a focus on changes in ROAS and their implications for budget allocation. 2. Adjusting financial models to reflect the latest ad revenue forecasts and shifts in cost structures. 3. Recalculating target prices based on the revised financial projections, while factoring in the impact of AI technology and geopolitical developments on the industry. During the analysis, UBS paid particular attention to the following points: - ROAS, as a core metric for evaluating ad effectiveness, plays a crucial role in ad budget allocation. - The pace of launching non-core advertising products is vital to AppLovin Corp’s growth. - Unity Software’s technological upgrades are key to its long-term competitiveness.

Methodology notes

• Valuation MethodEV/Adjusted EBITDA

  The ratio of enterprise value to adjusted earnings before interest, taxes, depreciation, and amortization, used to assess a company’s valuation level.

  UBS employed the EV/Adjusted EBITDA multiple to evaluate the reasonableness of the valuations for AppLovin Corp and Unity Software Inc, while also considering the impact of growth rates on valuation.

• Industry Analysis FrameworkSupply-demand framework

  By analyzing advertiser demand and platform supply capacity, this framework helps determine the industry’s competitive landscape and companies’ growth prospects.

  The report focuses on how ad spend return on investment (ROAS) influences advertiser budget allocation and assesses companies’ growth potential in light of supply-side technological advances.

• Quantitative/Factor/Portfolio Theory

  Scenario Analysis

  By constructing key assumptions under different scenarios (such as revenue growth rates, EBITDA margins, etc.), the report calculates a range of target prices, providing investors with a more comprehensive risk-return assessment.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• APP.US (AppLovin Corp)

  The Axon 2.0 engine delivers strong ROAS, but delays in rolling out non-core advertising products are weighing on short-term growth.

  Strengths

  Strong ROAS performance, stable operating margins.

  Weaknesses

  Non-core advertising product launches are behind schedule.

  Comparison

  Compared with Unity Software, AppLovin holds a stronger position in the gaming ad space, but lags in developing its non-core offerings.

  Risks

  The Middle East conflict could lead to ad budget adjustments, and AI technology may intensify competition.

• U.US (Unity Software Inc)

  The Vector engine has improved significantly, but growth may remain moderate in the short term.

  Strengths

  A growing share of high-margin businesses, clear technological advantages.

  Weaknesses

  Short-term growth may be constrained.

  Comparison

  Compared with AppLovin, Unity Software has greater potential in non-gaming areas, but its overall scale is smaller.

  Risks

  Platforms like Meta may enter the gaming ad market, and AI tools could disrupt traditional business models.

Key data

• AppLovin Corp Target Price$716Down from the previous target of $740, reflecting the impact of the delayed rollout of non-core advertising products.
• Unity Software Inc Target Price$28Up from the previous target of $26, highlighting the growth potential driven by improvements to the Vector engine.
• AppLovin Corp 2026 EBITDA Forecast$6,918MDown 1.0% from the previous forecast, largely due to the delayed launch of non-core advertising products.
• Unity Software Inc 2026 EBITDA Forecast$736MUp 8.0% from the prior estimate, underscoring the positive effects of enhancements to the Vector engine.

Impact & implications

UBS believes the mobile gaming advertising industry will continue to benefit from rising ad spend return on investment (ROAS), but the pace of launching non-core advertising products and the evolution of AI technology may pose challenges for some companies. AppLovin Corp needs to accelerate the full rollout of its non-core offerings, while Unity Software Inc must keep optimizing its Vector engine to maintain its competitive edge. Investors should closely monitor changes in ROAS and the long-term impact of technological advancements on the industry landscape.

Risks

• The Middle East conflict could result in adjustments to ad budgets.
• AI technology may pose a threat to the advertising industry.
• Major platforms such as Google and Meta may increase their investments in the gaming ad market.

What to watch

• The progress of non-core advertising product rollouts.
• How changes in ROAS affect ad budget allocation.
• The impact of AI technology and moves by large platforms on the industry landscape.