Unity Software Inc. recently made the decision to withdraw its previous financial forecast as it undergoes a business review and addresses concerns from developers regarding a controversial fee plan that has since been revised. Benchmark Research analyst Mike Hickey expressed his frank assessment of the situation, stating that the company's aggressive restructuring efforts paint a bleak picture for the future. In his analysis, Hickey predicts significant cost-cutting measures, including layoffs and office closures. Given these circumstances, he maintains a sell rating and sets a $16 target price for Unity's stock. He emphasizes that Unity's path forward is highly uncertain as they forgo providing guidance for the fourth quarter and focus on urgently realigning themselves. Overall, Unity appears to be in a precarious position, with the risk of failure looming large.
Concerns from Analysts
Tim Nollen from Macquarie also raised concerns about Unity Software's future prospects. Lowering his rating on Unity shares from outperform to neutral, Nollen suggests that the company's fundamental questions about its business, products, and prospects indicate that finding easy answers might be challenging. Nollen expresses worry about lackluster revenue performance in the fourth quarter and beyond. He highlights the underperformance of Unity's product, Create, potentially due to managed services trends, issues in China, or the negative impact of new runtime fees on game developers. Despite Unity's efforts to address some concerns and engage more with customers, Nollen observes that the growth of their product, Grow, only reached half the rate of AppLovin in the third quarter, partially thanks to ironSource.
These developments have put Unity Software under significant pressure, leading to a 13% decline in its premarket trading shares on Friday.
Unity Software Inc. faces a critical moment as it confronts developer backlash and undergoes a thorough business review. The company's uncertain future and aggressive restructuring efforts have concerned analysts, diminishing investor confidence. Unity must now make strategic moves to restore trust among developers and investors.
Jefferies analyst Andrew Uerkwitz voiced his year-long negative outlook on Unity Software, considering the review as a validation of his stance. He emphasized the need for an honest conversation about the way forward. However, Uerkwitz maintained a hold rating on the stock and lowered his price target to $23 from $27 in his recent report.
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While Uerkwitz was cautious, others expressed more optimism regarding Unity Software's future prospects. Dylan Becker from William Blair recognized the potential short-term uncertainty in business metrics but believed that the company's swift action and planned initiatives would accelerate emphasis on core products. He remained confident in long-term revenue growth, improved integration, synergies between the Create and Grow businesses, and healthy cash flow generation from real-time interactive content creation and monetization across gaming and non-gaming verticals. Becker reiterated his outperform call on the stock.
Unity Software: The Best Positioned Tech Company
Wedbush analyst Michael Pachter, though adopting more conservative estimates, highlighted Unity as the best positioned technology company to capitalize on emerging trends in digital twins and ad technology. Pachter emphasized Unity's ability to deliver brand advertisers to an extensive gaming audience of over 3.5 billion. Despite reducing his price target to $31 from $55, Pachter maintained an outperform rating on the stock.
In summary, analysts offered differing views on Unity Software's future prospects. While some remained cautious, particularly in light of near-term uncertainties, others expressed confidence in the company's ability to accelerate growth through strategic initiatives and capitalize on emerging trends in its industry.