California-based Unity Software (U) provides a platform for developing interactive content like games. The company has agreed to acquire New Zealand-based visual effects and animation solutions provider Weta Digital for $1.6 billion. It expects to close the transaction in Q4 2021.
With this in mind, we used TipRanks to take a look at Unity Software’s newly added risk factors. (See Analysts’ Top Stocks on TipRanks)
Q3 Financial Results
Q3 2021 revenue of $286.3 million exceeded the consensus estimate of $264.2 million. The company had reported revenue of $201 million in the same quarter last year.
Adjusted loss per share of $0.06 surpassed the consensus estimate of $0.07 loss per share. The adjusted loss per share stood at $0.09 in the same quarter last year. Unity Software ended Q3 with $766.3 million in cash. The company plans to fund the Weta acquisition with a combination of cash and stock. (See Unity Software stock charts on TipRanks).
According to the new TipRanks’ Risk Factors tool, Unity Software’s main risk categories are Finance & Corporate and Ability to Sell, which account for 38% and 21%, respectively, of the total 72 risks identified for the stock. Recently, the company updated its risk profile with three new risk factors under the Finance and Corporate risk category.
Unity Software has mentioned that its market growth forecasts are subject to a number of uncertainties, therefore the market may not grow as fast as it anticipates. It further informs investors that while the market may grow as it expects, its business may fail to grow as fast due to competition and how the market receives its products.
The company has highlighted that the proposed Weta acquisition may disrupt its business. It mentions that the integration process may put a significant burden on its internal resources and management’s attention. It says that it will have to incur costs related to the Weta acquisition deal regardless of whether the transaction actually closes. Furthermore, the company says there may be lawsuits against the Weta deal, which could result in significant costs to resolve.
Unity Software has cautioned that if it fails to complete the Weta acquisition, its business, financial condition and stock price may be adversely impacted. The deal could collapse or delay to close if the parties are unable to obtain necessary regulatory approvals.
The Finance and Corporate risk factor’s sector average is at 44%, compared to Unity Software’s 37.5%. Shares of the company have gained about 19% year-to-date.
Following Unity Software’s Q3 earnings report, Credit Suisse analyst Stephen Ju reiterated a Buy rating on the stock and raised the price target to $185 from $160. Ju’s new price target suggests 1.58% upside potential.
Consensus among analysts is a Moderate Buy based on 7 Buys and 3 Holds. The average Unity Software price target of $168.63 implies 7.41% downside potential from current levels.