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Unity Software (NYSE:U) rose 2%, reversing earlier losses on Friday after third-quarter figures missed estimates and the interim chief executive vowed to right the ship.
Third quarter sales missed estimates and Unity (U) also declined to provide guidance for the fourth-quarter or the full year as the company seeks to refocus, accelerate revenue growth and improve profitability metrics.
Analysts appeared to be cautiously optimistic.
Stifel, still buying
Stifel analysts led by J. Parker Lane maintained a Buy rating on Unity (U), though they reduced its target price to $28 from $40 to reflect multiple compression and a lower growth outlook.
Unity (U) has just begun to scratch the surface of the sizable non-gaming/industries segment for use-cases like Digital Twins, which connect real-world assets and data, creating virtual representations of nearly anything.
With the company merging with adtech company ironSource in 2022, “Unity now has the opportunity to unlock deeper monetization potential for developers, and deliver a more balanced mix of growth and profitability in the coming years,” Stifel said.
Needham is also buying
Needham also kept a Buy rating on the stock, though it lowered its price target to $40 from $50, given uncertainty around “asset pruning.”
“Data points are piling up for U pivoting towards profitability over the past 12-18 months, and we think management is taking the right actions steering the ship this way, but there was a strong current to steer through,” analysts Bernie McTernan and Stefanos Crist wrote in a note.
“We think the company is focused on the right actions to drive shareholder value,” the analysts said.
UBS needs a minute
UBS, which has a Neutral rating on the stock and a $25 price target down from $38, is in “wait and see mode.”
Unity (U) pulled its prior 2023 guidance as it conducts a broad product portfolio review in which it plans to discontinue certain product offerings, cut its workforce and reduce its office footprint, UBS analysts led by Chris Kuntarich wrote in a note. “The uncertainty around where this process will leave Unity makes it difficult to have high conviction around numbers.”
The company is taking decisive action to create a healthier growth/margin profile business and the removal of guidance supports this commitment, UBS said. The company also hasn’t yet executed on synergies, which should still mean there is upside.
This story has been updated to reflect Unity shares have moved into positive territory.