Not All Analysts Are Throwing In The Towel On Unity Software: What You Need To Know

Unity Software Inc U delivered a less-than-perfect earnings report Wednesday, coupled with forward guidance that failed to meet Street expectations.

As a result, shares continued to descend into Thursday’s open.

However, not all analysts are throwing in the towel on the “Pokemon Go” maker. Here’s what they have to say.

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• Piper Sandler's Brent Bracelin maintained its overweight rating on Unity, and raised its price target from $33 to $43.
• Needham's Bernie McTernan reiterated a buy rating on Unity, and raised the price target from $35 to $44.
• Oppenheimer's Martin Yang downgraded Unity Software to a perform rating, and removed its previous price target of $28.
• Benchmark's Mike Hickey issued a sell rating on Unity, with a $16 price target.

By The Numbers: Unity reported a revenue increase of 43% compared to the same period the previous year, bringing in $451 million. This exceeded the average analyst estimate of $438.81 million, according to Benzinga Pro.

However, the company reported quarterly losses of 82 cents per share, missing the analyst consensus estimate of 2 cents per share.

Unity also said that its Create Solutions 2022 revenue grew by 41% year-on-year, with revenue growth being widespread. Games revenue increased by 24% year-over-year, while industries beyond games saw a significant rise of 118% year-over-year.

Meanwhile, Grow Solutions 2022 revenue — which includes ironSource as of November 7 — increased by 12% year-on-year. Unity acknowledged that its Grow Solutions segment was affected by portfolio and executional gaps in the past, as well as a challenging economic environment.

Piper Sandler

• Unity reported its first-ever non-GAAP operating profitability during the fourth quarter, due to cost controls and the merger with ironSource. The company's 2023 outlook calls for 53% growth, implying achievable $2.125 billion revenue even if the standalone Unity business declines year over year, which Piper views as unlikely.
• Bracelin said Unity's unique revenue model, part software and part advertising, makes it a highly volatile growth stock.

Needham

• McTernan’s upbeat analysis is due to Unity’s better-than-expected guidance for earnings before interest, taxes, depreciation, and amortization (EBITDA) despite lower revenue forecasts.
• Needham said Unity is taking a conservative approach to revenue guidance, predicting a decrease in revenue for the Grow segment in 2023 but with an expected return to normal growth in 2024.

Oppenheimer

• Unity's valuation multiple accounts for updated revenue growth and margin profiles, but Yang still downgraded the stock.
• Oppenheimer is moving to the sidelines due to uncertainty around mobile ad market recovery and Unity's expansion among non-gaming enterprise customers.

Benchmark

• Although Unity exceeded its own financial guidance, it missed analysts' estimates, Hickey explains. It also provided weak guidance for the first quarter of 2023 and disappointing growth targets for the year.
• Unity’s growth profile may face challenges as its business model heavily relies on the gaming industry, which is vulnerable to a recession, and new privacy measures have made user acquisition and monetization more challenging.

Price action: Shares of Unity Software are trading 6.74% lower during Thursday’s premarket session to $35.30, according to data from Benzinga Pro.

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