On Friday, Oppenheimer maintained its Perform rating on Unity Software (NYSE:U) ahead of the company's third-quarter 2024 results, which are scheduled to be reported on November 7th after the market closes. The firm's stance comes amid indications of a sequential increase in mobile gaming revenues, which have risen by more than 13% quarter-over-quarter.
Despite the positive industry data, expectations for Unity's Grow segment in the near term remain subdued. The analyst from Oppenheimer highlighted that investor confidence in Unity's stock might be tepid until there is a significant recovery in the Grow segment's performance.
Looking further ahead, Oppenheimer's proprietary model suggests potential growth for Unity's Create revenue in 2025. This optimism is based on the anticipated transition of customers from Unity's Plus subscriptions to its more premium Pro subscriptions.
Unity Software, known for its real-time 3D development platform, has been closely watched by investors for signs of growth and stability in its various business segments. The upcoming quarterly report will provide further insights into the company's financial health and its strategic direction amidst a competitive gaming industry landscape.
In other recent news, Unity Software has launched Unity 6, a version featuring enhanced performance and features. The new release is designed to improve game development speed and efficiency, with advancements such as comprehensive multiplayer workflows, mobile web targeting tools, and new graphics capabilities. Unity has committed to long-term support for Unity 6, aiming to expand its features and functionality.
The company has also introduced resources to assist developers in leveraging Unity 6, such as the Time Ghost real-time cinematic demo, the Fantasy Kingdom mobile-optimized demo, and the Megacity Metro demo.
In addition to this, Unity has seen a series of analyst updates following major changes in its pricing model. HSBC (LON:HSBA) raised its price target for Unity to $21.80, maintaining a Hold rating, while Macquarie increased Unity's price target to $15.00, despite keeping an Underperform rating. Stifel raised its price target for Unity to $25, maintaining a Buy rating, and Oppenheimer held steady with its Perform rating. Morgan Stanley (NYSE:MS) maintained its Equalweight rating and a $22 price target for Unity Software, indicating these changes could lead to a 5% increase in Unity's EBITDA for 2026.
Despite a 16% year-over-year decrease in Q2 revenue to $449 million, strategic revenue growth and improved profitability are expected later in the year.
InvestingPro Insights
As Unity Software (NYSE:U) approaches its Q3 2024 earnings report, InvestingPro data offers additional context to Oppenheimer's analysis. The company's market cap stands at $8.44 billion, reflecting its significant presence in the gaming development sector. Unity's revenue for the last twelve months as of Q2 2024 reached $2.06 billion, with a notable revenue growth of 14.13% over the same period. This growth aligns with Oppenheimer's observations of increased mobile gaming revenues.
However, Unity's profitability remains a concern, as highlighted by an InvestingPro Tip indicating that the company was not profitable over the last twelve months. This is further evidenced by the negative operating income of -$820.33 million and an operating income margin of -39.76% for the same period. These figures underscore the challenges Unity faces in translating revenue growth into bottom-line profits, which may explain Oppenheimer's cautious stance.
On a positive note, an InvestingPro Tip reveals that Unity has experienced a strong return over the last three months, with price total return data showing a 29.93% increase. This recent stock performance could suggest growing investor optimism, possibly tied to expectations of future growth in the Create segment, as mentioned by Oppenheimer.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for Unity Software, providing a deeper understanding of the company's financial health and market position.
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