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Unity Software: Deserving of Hold Rating?
Stock Analysis & Ideas

Unity Software: Deserving of Hold Rating?

Unity Software (NYSE:U), a prominent video-game development platform, has been a favorite pick among analysts.

The majority of experts rank the company as a Buy due to Unity’s considerable future growth momentum, although there are a few analysts who disagree. One such analyst is Clark Lampen of BTIG, who wants to stay out for the time being.

In contrast with its 7 Buy ratings, why did Unity earn a Hold rating from Lampen and one other analyst?

Conservative Guidance & Unattractive Valuation

Unity Software forecasted total revenues in the range of $285 – $290 million for the fourth quarter. For the full year of 2021, management predicts sales of $1,080 – $1,085 million, lower than the average estimate of $1,100 million.

According to Lampen, the forecast provided by management looks to be modest, with revenue patterns slowing in Q4, following a robust third quarter. Although the analyst feels that the guidance is dragging on the stock, he does not believe that underlying trends have deteriorated.

On a more positive note, the analyst continues to be impressed by Q3 print and is optimistic about the Weta Digital transaction. Revenues are also expected to increase in 2022 and beyond, according to the analyst.

“We’re neutral on valuation and are awaiting signs of traction with new revenue opportunities like Multiplay,” he wrote.

As a consequence, Lampen assigned the shares a Hold rating.

It will be fascinating to watch how the firm performs in its upcoming earnings season.

Growth Catalysts

The organization is making earnest attempts to develop its base of creators by expanding its addressable market into new sectors.

First, the introduction of the metaverse has the potential to boost Unity’s growth possibilities. Indeed, Unity’s Total Addressable Market (TAM) is already large, but once the metaverse is poised to take the globe by storm, it might grow even larger.

Second, the company’s recent acquisition of Weta Digital has put another feather in its crown. Unity Software’s 3D services will be bolstered as a result of the transaction.

The majority of analysts are also optimistic about the buyout. With advanced graphic design and visual effect tools, they anticipate the transaction to expand Unity’s strategic importance across sectors.

In terms of revenue, Unity recorded $286.3 million in the third quarter, up 43% from the same period last year. On the other hand, the company announced a loss of $0.06 per share, which was lower than Wall Street’s expectations.

Analyst Rating Consensus

According to TipRanks’ consensus rating, Unity Software stock has a Strong Buy consensus rating, based on 7 Buys and 2 Holds. As for price targets, the U stock price prediction of $178.86 implies 23.7% upside potential from the current levels.

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Disclosure: At the time of publication, Shalu Saraf did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >

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