Why These Analysts Cut Unity Software Price Target By 50%

Zinger Key Points
  • A Morgan Stanley analyst says Unity is reporting concerning guidance for 2Q/3Q.
  • A Piper Sander analyst notes that Unity's market share gains are set to reverse this year.
Why These Analysts Cut Unity Software Price Target By 50%

Shares of Unity Software Inc U tanked more than 30% after the company reported a wider-than-expected net loss for the first quarter and issued weak revenue guidance.

Morgan Stanley On Unity Software: Analyst Matthew Cost maintained an Overweight rating, while lowering the price target from $110 to $50.

Even though the company reported broadly in-line results for the first quarter, the revenue guidance for the second quarter and the full year was disappointing, “as the company now expects results from its Create and Operate segments to diverge strongly in 2Q/3Q, before returning to the prior trend line during 4Q,” Cost wrote in a note to clients.

“U is projecting a $110mn headwind to Operate over the course of '22, driven primarily by issues with its lookalike audience targeting tool, Audience Pinpointer, which handles the majority of spend through the ad network,” the Morgan Stanley analyst added.

Piper Sandler On Unity Software: Analyst Brent Bracelin reiterated an Overweight rating, while reducing the price target from $145 to $55.

The company’s market share gains are “poised to reverse in 2022,” with the Pinpointer algorithms becoming “less effective after data corruption and calculation errors that are just now being fixed,” Bracelin said in his note.

“We are lowering our Operate estimates by 20% or $181M to $718M this year (vs. $709M last year) with the understanding it could take 90 to 180 days to retrain the model before improving accuracy,” the Piper Sandler analyst wrote. “These Operate internal challenges overshadow robust Create adoption in non-gaming,” he added.

U Price Action: Shares of Unity Software had tanked 31.29% to $33.00 at the time of publication Wednesday, according to Benzinga Pro.

Posted In: Brent BracelinMatthew CostMorgan StanleyPiper SandlerAnalyst ColorPrice TargetReiterationAnalyst Ratings