Unity Software Disappoints In Q1, 4 Analysts Provide Input On What To Expect In 'Back Half' Of 2024

Shares of Unity Software Inc U tanked in early trading on Friday, after the company reported mixed results for the first quarter.

The results came amid an exciting earnings season. Here are some key analyst takeaways.

• Needham analyst Bernie McTernan maintained a Buy rating and price target of $31.
• Wedbush analyst Michael Pachter reiterated an Outperform rating and price target of $33.50.
• Benchmark analyst Mike Hickey reaffirmed a Sell rating and price target of $16.
• JMP Securities analyst Andrew Boone maintained a Market Perform rating on the stock.

Check out other analyst stock ratings.

Needham: Unity Software delivered a "large" beat in the first quarter. Its strategic revenue growth is likely to accelerate through the back half of 2024, McTernan said in a note. While adjusted EBITDA came significantly higher than expectations, "cloud consumption expenditure is weighing on the expected sequential growth in adj. EBITDA in 2Q," he added.

The company expects to "gain leverage and increase efficiency of these cloud costs," which could result in margin expansion both in the third and fourth quarters, the analyst stated. "With a new CEO coming aboard next week, we think the end of the restructuring effort should be in sight and investor focus should shift back to U’s strategic positioning in the gaming industry," he added.

Wedbush: Unity Software recorded total revenue from strategic operations of $426 million, missing the consensus of $432 million, Pachter said. The company's non-GAAP EBITDA came in at $78.5 million, significantly higher than Street expectations of $47.9 million.

Management guided to second-quarter strategic revenue and adjusted EBITDA of $420-$425 million and $75-$80 million, "compared with our prior estimates of $440 million and $80.0 million," the analyst stated. The outgoing CEO, Jim Whitehurst, "did the right thing in re-focusing Unity on its core businesses." Matt Bromberg starts as CEO next week.

Benchmark: Unity Software reported disappointing first-quarter results. It issued an "underwhelming" guidance for the second quarter, suggesting "ongoing challenges," Hickey said in a note.

"Despite reaffirming its fiscal 2024 outlook, this is seen as inadequate since consensus anticipated performance above the high end of the range," the analyst wrote. "The lackluster first half increases the execution risk for the latter half of the year, raising concerns about Unity’s ability to meet its annual targets," he added.

JMP Securities: Unity Software's results were "solid." Second-quarter EBITDA guidance was around $20 million below consensus, Boone said.

"While we believe Unity continues to be a best-in-class gaming engine with 69% share of the top 1,000 mobile games, we await greater clarity that growth can accelerate given a more performant monetization platform in Grow and that Unity can successfully execute a pricing strategy with Create," the analyst wrote. "There are many unknowns today.”

U Price Action: Shares of Unity Software had declined by 4.84% to $22.98 at the time of publication on Friday.

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