Unity Software Inc. has lobbied. is on the reset button, but analysts are divided on whether the app monetization software company now has a brighter future ahead.
Brent Thiel, a Jefferies analyst, noted that the company's recent results were “much worse than expected,” and noted a 2% decline in pro-forma quarterly revenue compared to the previous year. Meanwhile, Unity U,
The first quarter financial outlook indicates steady growth.
“We are concerned that the loss of the IronSource team and the lack of new product in the Grow segment could result in continued losses for the stock,” Thiel wrote. The management team of IronSource, an Israeli ad tech company that Unity merged with in late 2022, announced last month that they were leaving the company.
Additionally, Thiel said the fallout from Unity's recent layoffs and portfolio realignment “will continue to impact growth at least through the first two quarters of 2024,” in his estimate. Overall, he and his team “are finding it difficult to get conviction on this matter [revenue] Growth Path” Although the unit's management may take a conservative approach with its final forecasts.
Thill gave a hold rating on Unity stock and lowered the price target to $30 from $35 in his recent note to clients.
Unit shares fell 13% in pre-market trading on Tuesday.
Benchmark's Mike Hickey also expressed concerns about the impact of the turmoil at Unity, calling the company's reset “questionable” and its latest results “dismal.”
“Unity's repositioning plan focuses on core business and cost optimization, which promises future growth, however [it] “It lacks immediate evidence and clear criteria for investment decisions, making its success uncertain.” “We have concerns about the potential negative impact on company culture due to the 25% headcount reduction and the departure of some key founding members.”
He rates Unity shares at Sell with a price target of $16.
Macquarie's Tim Nolen viewed Unity shares as still expensive, trading at around 8 times enterprise value for estimated 2024 sales based on implied price action from the extended session.
“Fundamental changes like these take a long time to work through, and Unity faces at least half a year of revenue stagnation before hoped-for improvements in both divisions,” he wrote, sticking to an underperform rating and a $20 price target.
Others, including William Blair's Prime Minister Dylan Baker, were more optimistic.
“Overall, we view the pace of the strategic review process as encouraging, enabling the company to shift its focus on doubling down on platform investments and prioritizing sustainable revenue growth initiatives going forward, supported by 18% of core subscription growth and record non-books: “Gaming Industries Momentum, In addition to greater integration between construction and growth solutions.”
He believes Unity's recent moves will position it “to drive a healthy mix of durable revenue growth and material free cash flow generation through 2025 and beyond.”
Baker has an outperform rating on the stock.
Needham's Bernie McTiernan offered that the latest forecast serves as a “steady floor” from which the company can now drive growth.
“We have seen other companies in our coverage make this shift to profitability, which then returns investor focus back to the company's revenue trajectory,” he wrote, maintaining his buy rating but lowering his price target to $31 from $40.
