Unity Software Inc (NYSE:U) may be set to underwhelm the market as it releases its fourth quarter results, according to California-based stockbroker Wedbush.
The company, which makes video games engines, developer tools and cloud-computing services, is potentially feeling the squeeze amid tough macroeconomics, Wedbush noted, as it previewed its upcoming results due on Wednesday, February 22.
Unity stock was down US$1.05 or 2.46% in Thursday's trade, changing hands at US$41.62.
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In gaming verticals economic uncertainties – especially the widespread tech layoffs - may have triggered a drop in licence numbers or downgrades to subscription tiers, Wedbush said, whilst non-gaming services could be viewed in the client base as “nice to have rather than must have” services.
Wedbush added that advertising revenue streams currently suffer from “sentiment recession” as clients conserve cash.
Unity’s US$4.4bn acquisition of ad-tech firm Ironsource (which closed in November) represents another potential dent, whilst a “competition spike” could’ve hurt what the broker describes as "usage-based monetization" amongst its clients.
Unity's future 'remains bright'
With such a shopping list of concerns, it is perhaps a wonder that Wedbush retains unchanged its ‘Outperform’ rating for the stock along with its 12-month price target of US$45.00 which still suggests some upside to the share’s current price.
Wedbush analyst Michael Pachter, in a note, commented that although external factors present "growing pains" Unity’s future “remains bright”.
“Over the next several quarters, we expect economic sentiment to gradually improve, which should drive increased adoption of multiple key products within the Unity portfolio,” Pachter said.
“Over the long term, Unity is well-positioned to be the primary 3D content provider for the creation of the metaverse.”
Setting its sights on Wednesday’s results, specifically, Wedbush reckons the financial metrics may land at the lower end of guidance.
Nevertheless, the broker’s prior (and currently unchanged) forecasts see fourth quarter revenue at US$445 million, leading to US$15 million of operating income.
It notes that Unity’s own guidance is set at US$425 million to US$445 million for revenue and US$5 million to US$15 million for income, whilst market consensus is pitched at US$439 million and US$12.5 million respectively.
--first published 16 February--