Unity Software Faces Uncertainty as Job Cuts and Product Discontinuation Loom

Unity Software, a prominent player in the world of videogame development, is facing a period of uncertainty. The company has chosen not to offer a financial forecast as it navigates through significant changes that are expected to result in additional job cuts and the discontinuation of certain products.

Despite the uncertain outlook, many analysts who closely follow Unity still have confidence in the company's stock.

In recent times, Unity has experienced some challenging days. On September 12, the company announced a new pricing structure that sparked backlash from customers. However, on September 22, management backtracked on this plan and issued an apology for the decision.

Since mid-2022, Unity has undergone three rounds of job cuts, with the most recent one occurring in May.

In its latest earnings report, Unity delivered earnings of 32 cents for the third quarter, surpassing the analysts' prediction of 17 cents. However, while its revenue of $544.2 million fell within the range foreseen by management, it slightly missed the expected $554.2 million mark.

Despite these results, Unity chose not to provide any guidance for the fourth quarter or the full year 2023. In a letter to shareholders, the company explained that it is currently focused on implementing "operational interventions." These interventions are likely to entail further workforce reductions, a decrease in office space, and the discontinuation of certain products.

As a result of these developments, Unity's stock experienced a notable 7.9% decline on Friday, ultimately reaching $23.25.

Conclusion

Unity Software's decision to forgo providing a financial forecast has left many investors and analysts uncertain about the company's future. With impending job cuts and product discontinuation on the horizon, Unity must navigate through a challenging period. Nonetheless, faith in the company's stock remains intact for many analysts, reflecting their optimism in Unity's ability to weather the storm ahead.

Needham cuts target price on stock

Bernie Mcternan, an analyst from Needham, has lowered his target price on the stock to $40 from $50. This adjustment is due to the increased uncertainty and potential volatility that may arise in the coming quarters. However, despite this change, Mcternan still maintains a Buy recommendation on the stock. He acknowledges management's efforts in redirecting the company as a positive move.

William Blair supports the stock

Dylan Becker, an analyst from William Blair, has reiterated his Outperform rating on the stock. In a research note on Friday, he expressed confidence in the company's growth potential and commended management for their quick action. It is worth noting that William Blair does not provide specific price targets for the stocks they cover.

Analyst sentiments vary

According to FactSet, approximately 55% of analysts recommend buying the stock, while 39% suggest either no action or rate it as a Hold. Only 7% of analysts recommend selling.

A dissenting view

Mike Hickey from Benchmark holds a Sell rating on the stock. He believes that the company is currently undergoing a significant cost-cutting initiative and characterizes their efforts as a "desperate scramble to reorient." Hickey has set a target price for the stock at $16.