Video gaming engine developer Unity Software‘s (U -5.55%) 2024 isn’t developing so nicely. On the back of a disastrous change in its pricing regime and the subsequent resignation of its CEO last year, the company announced it was laying off roughly one-quarter of its workforce.
So it’s hardly surprising that at least one analyst has become notably more pessimistic on the company’s future.
Negative developments triggered a downgrade
That analyst is Macquarie’s Tim Nollen, who last week downgraded Unity’s stock to “underperform” — “sell,” in other words — from his previous “neutral” rating. Now, Nollen believes the shares are only worth $20 apiece, well down from their latest closing price of $32.
In Nollen’s new take on Unity, he expressed concern about the scale of the company’s reorganization. Among the departures are what he termed “key” individuals at ironSource, the Israeli ad tech and mobile app specialist Unity purchased in mid-2022 in an all-stock deal valued at $4.4 billion.
The analyst feels that the combination of the two companies has underperformed; the departures are likely to worsen the situation.
Nollen also pointed to two other main factors behind his downgrade. He anticipates a delay in Unity’s monetization of game engine tech, since game developers are downsizing and cutting costs, too. Finally, he thinks the company will experience “delayed revenue upside,” in the wake of the pricing saga.
A company in transition
Unity kicked off 2024 in a retreat and retrench mode, and we don’t yet know how successful interim CEO Jim Whitehurst’s team will be in righting the ship. Observers will be waiting to see the effects of its big moves; until there’s some indication that they’ll benefit the company in the mid- to long-term, investors might want to avoid this specialty tech stock for now.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Unity Software. The Motley Fool has a disclosure policy.
