Unity Software Stock Is Sliding Today: What's Going On?

Unity Software Inc U shares are trading lower Thursday. BofA Securities reinstated coverage with an Underperform rating.

What Happened: BofA Securities put an Underperform rating on Unity on Thursday with a 12-month price target of $15 as the analyst firm believes the company’s game engine business is overvalued.

BofA said in a note to clients that it’s “unconvinced” that Unity’s Create segment can generate shareholder value through subscription sales. Given the company’s substantial game engine investments, the firm is concerned about Unity’s ability to monetize through ads.

“70% of mobile games run on Unity Engine, but only ~10% of developers pay,” BofA analysts said.

The analyst firm said lower odds of financial success and longevity makes most casual game developers unwilling to pay for large teams of users. BofA believes Unity’s move to try to tie revenue to content consumption is a black eye for the company and noted that almost every other gaming engine that it looked into either generates revenue through content sales or is open source.

Former chairman and CEO John Riccitiello stepped down in October 2023 after Unity faced backlash over changes to its Runtime Fee policy.

Last month, several analysts adjusted price targets following the company’s first-quarter financial results. Here’s a look at recent analyst changes:

• Jefferies analyst Brent Thill upgraded Unity from Hold to Buy and raised the price target from $22 to $29.

• Barclays analyst Ross Sandler maintained Unity with an Equal-Weight and lowered the price target from $26 to $25.

• Stifel analyst Parker Lane maintains Unity with a Buy and lowered the price target from $35 to $28.

• Needham analyst Bernie McTernan maintained Unity with a Buy and lowered the price target from $33 to $30.

U Price Action: Unity Software shares were down 3.66% at $23.31 at the time of publication Thursday, according to Benzinga Pro. Unity shares are up approximately 4% year-to-date.

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