Unity Software has faced a challenging year, with its stock declining over 60% year-to-date. The company’s troubles began last fall when it introduced a controversial “Runtime Fee” based on the number of users installing games built using its development engine. The backlash from game developers forced Unity to walk back the plan.
Subsequently, Unity restructured, cutting about 25% of its workforce and exiting money-losing businesses to refocus on segments that would create the most value and profitability. In its most recent earnings report under new CEO Matt Bromberg, Unity announced a revenue decline of 16% year-over-year to $449 million. The company reduced its full-year revenue forecast to a range of $1.68 million-$1.69 million from an earlier outlook of $1.76 million-$1.8 million.
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were also revised down to $340 million-$350 million from $400 million-$425 million, driven by a cautious outlook on the recovery of its Grow Solutions business. CEO Matt Bromberg’s recent guidance revision aims to give Unity time to improve its products and win back customers.
Unity faces year of strategic shifts
However, the company faces significant challenges, particularly with its ad business, which has been undercut by competitors like AppLovin. On Friday, a major financial firm adjusted its price target for Unity Software to $24, down from the previous $31, while maintaining a Buy rating. The firm remains optimistic about the company’s prospects, particularly with the anticipated improvements under the new management team and the potential impact of Unity 6, the upcoming version of the company’s software.
Despite the challenges, Unity Software reported strategic revenue growth and improved profitability in Q1 2024, with expectations for further improvement later in the year. Analyst firms Benchmark and Piper Sandler have adjusted Unity Software’s price target to $10 and $17, respectively, due to these recent developments. As Unity Software navigates through its recent hurdles, the company presents a market capitalization of approximately $6.48 billion and a P/E ratio that suggests it is not currently profitable.
However, analysts predict the company will be profitable this year, and its liquid assets exceed its short-term obligations, providing some financial stability amidst the volatility. Investors seeking a deeper dive into Unity Software’s performance metrics and strategic outlook can find additional insights on InvestingPro, which could offer valuable perspectives on the company’s shareholder yield and the broader analyst sentiment regarding its future earnings and sales projections.
