On Tuesday, Unity Software (NYSE:U) saw its price target increased to $15.00 from $12.00 by Macquarie, while the firm kept its Underperform rating on the stock. The revision comes in the wake of Unity's recent announcement to abolish its runtime fee, opting instead to implement price hikes for its Pro and Enterprise seat licenses starting in January 2025.
The analyst from Macquarie acknowledged the positive aspect of stability in Unity's Create division but pointed out that the anticipated revenue increase from the price adjustments would be marginal, around 3%.
Additionally, the analyst highlighted concerns about Unity's Grow segment, which is currently going through an investment cycle without showing growth.
Despite the higher price target, the analyst reiterated the Underperform rating, suggesting skepticism about Unity's valuation. The firm's assessment is that Unity's stock is trading at a valuation roughly double the EV/EBITDA multiple of its peer, APP.
The decision to eliminate the runtime fee and adjust licensing costs is a strategic move by Unity as it prepares for the future. The analyst's statement suggests that while the move may contribute to revenue, it is not expected to be a significant driver of growth, especially in the context of the broader challenges the company faces.
Macquarie's new price target of $15 reflects a 25% increase from the previous target but still conveys caution regarding Unity Software's current market position and future prospects. The firm's analysis indicates that despite the price target adjustment, Unity's stock may still be overvalued in comparison to industry standards.
In other recent news, Unity Software has seen a significant adjustment to its pricing model, with Stifel raising its price target to $25 and maintaining a Buy rating in response.
The changes, led by new CEO Matt Bromberg, include the removal of the contentious Unity Runtime Fee, a move anticipated to reestablish trust within the gaming industry. Concurrently, Oppenheimer has maintained its Perform rating for Unity Software, seeing the pricing adjustments as key for the successful debut of Unity 6.
Morgan Stanley (NYSE:MS) has also maintained its Equalweight rating and a $22 price target for Unity Software, highlighting the cancellation of the Runtime Fee and the introduction of a new pricing strategy. The firm suggests these changes could lead to a 5% increase in Unity's EBITDA for 2026.
Additionally, Morgan Stanley upgraded Unity Software from Equalweight to Overweight, following a period of underperformance for Unity Software's shares.
Meanwhile, Citi adjusted its price target for Unity Software to $24, maintaining a Buy rating. The revision reflects a change in the valuation multiple and additional risks related to the company's business strategy.
Despite a 16% year-over-year decrease in Q2 revenue to $449 million, Unity Software reported strategic revenue growth and improved profitability in Q1 2024, with expectations for further improvement later in the year.
InvestingPro Insights
As Unity Software (NYSE:U) navigates through its strategic pricing changes, real-time data from InvestingPro provides a clearer picture of the company's financial health. The market capitalization stands at $8.07 billion, reflecting the scale of the business in the software industry. Despite a significant return over the last week with a 21.19% increase, analysts have concerns, as evidenced by four analysts revising their earnings downwards for the upcoming period, indicating potential headwinds.
InvestingPro Tips suggest that Unity's stock movements have been quite volatile, which may be a point of consideration for investors seeking stability. Furthermore, the company's liquid assets exceed its short-term obligations, which could provide some level of assurance regarding its financial resilience. For those interested in deeper analysis, InvestingPro offers additional insights and metrics, which can be found at https://www.investing.com/pro/U.
With the anticipated sales decline in the current year, Unity's decision to adjust its licensing fees could be a pivotal step in its attempt to boost revenue. The company's revenue growth over the last twelve months was 14.13%, yet the quarterly figure shows a decline of 15.79%, highlighting the challenges Unity faces in maintaining consistent growth. This nuanced financial landscape underscores the importance of thorough research and analysis when considering investment decisions in Unity Software.
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