Unity Stock (NYSE:U)
Thursday’s 17% drop in Unity Software (NYSE:U) shares came after the business reported lower-than-expected profits and forecasted weaker-than-expected sales for the first quarter. It has now reached its lowest place in almost a month.
Because of this news, Oppenheimer lowered their recommendation for the stock from Outperform to Perform.
According to analyst Martin Yang, “although management’s more cautious forecast significantly de-risks 2023 projections, we think Unity’s valuation multiple” – more than 7x enterprise value to 2023 sales – “has appropriately compensated for revised revenue growth and margin profiles.”
This results in “moving to the sidelines as we monitor for additional indications of mobile ad market recovery and U’s growth among non-gaming business clients,” as stated in the previous sentence.
Oppenheimer is optimistic about Unity because of the company’s strong foothold in the mobile gaming market and the “secular expansion of real-time 3D content to non-gaming sectors.”
According to the observations of Barclays analyst Mario Lu, the report’s results created a “story of two cities”: the “Create” solutions sector of the company’s business continues to outperform analysts’ projections. In contrast, the “Grow” solutions division will continue to struggle.
In general, management is taking a cautious approach with guidance. The expectation for the whole year is a “low barrier to beat,” according to Lu, despite some persistent uncertainties regarding growth in the fiscal year 2024 and beyond.
Even though the previous quarter (Q4) exceeded analysts’ expectations, the company has a rating of Underperform from Jefferies. One of its analysts, Andrew Uerkwitz, believed the forecast for the first quarter was “soft.” At the same time, the prognosis for 2023 was “ambitious.” Given that the projections are on the low end of the spectrum, he is taking a wait-and-see approach.
Even bullish Citi anticipated that there would be some pullback, and analyst Jason Bazinet, who has a Buy rating, said that given the sales outlook, he wouldn’t be shocked to see the company trade lower.
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