Why Unity Software Stock Is Skyrocketing Today

Unity Software (NYSE: U) stock is seeing explosive gains in Thursday's trading. The company's share price was up 28% as of 12:45 p.m. ET, despite the S&P 500 (SNPINDEX: ^GSPC) and the Nasdaq Composite (NASDAQINDEX: ^IXIC) both being down 0.7%.

Unity published its fourth-quarter results before the market opened this morning and delivered sales and earnings performance that crushed the market's expectations. Adding to the sweetness of the report, the company also issued forward guidance that came in well above Wall Street's targets.

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Unity stock soars on Q4 beats

Unity reported a loss per share of $0.30 on sales of $457.1 million in Q4, topping the average Wall Street analyst estimate's call for a per-share loss of $0.37 on sales of $433.47 million. While revenue for the period was down 25% year over year, the performance still came in far better than the market expected -- and there were clear bright spots on a category basis. The company has been shifting its monetization practices with long-term engagement in mind and aiming to improve profitability, and sales for the core strategic portfolio at the heart of this initiative were up 4% year over year to $423 million.

What's next for Unity?

For the first quarter, Unity is guiding for sales to come in between $405 million and $415 million. Meanwhile, non-GAAP (generally accepted accounting principles) adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) is projected to come in between $60 million and $65 million.

Even though Unity's midpoint sales guidance calls for a sequential quarterly decline of roughly 10%, investors are actually excited for one of the big catalysts behind the projected decline. The company is rolling out its Unity Vector artificial intelligence (AI) platform. While it's expected to create some sales cannibalization in the near term, it has the potential to be a powerful long-term growth driver and could help significantly improve the business' margins.

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Keith Noonan has positions in Unity Software. The Motley Fool has positions in and recommends Unity Software. The Motley Fool has a disclosure policy.