Unity Software Inc. (u) operates a real-time 3D development platform that provides its customers with software solutions for creating and monetizing real-time 2D and 3D content for phones, tablets, PCs, consoles and virtual reality devices.
The Company operates in the gaming and entertainment space, but also has heavily invested in the Metaverse. A significant contribution to this is made by the company’s acquisition strategy, which helped it to accumulate new technologies. The company has acquired over 20 startups. However, the market for real-time 3D or 2D interactive content in industries beyond gaming is still in its infancy.
Recently, mobile technology company Applovin Corp. (APP) withdrew its merger proposal after Unity Software rejected its unsolicited $20 billion offer. U is now planning its own proposed acquisition of ironSource Ltd. valued at $4.40 billion (IS). U shares plummeted on the news.
U stock is down 73.4% over the past year and 75.6% year-to-date. It is down 26.8% over the past month to close its last trading session at $34.90.
Here are the factors that could affect U’s performance in the short term:
For the second fiscal quarter ended June 30, U’s non-GAAP operating loss increased 6,351% year over year to $44.13 million. Non-GAAP net loss increased 3,862.5% from the year-ago quarter to $53.14 million. Non-GAAP net loss per share attributable to common shareholders was $0.18, an increase of 1,700% over the same period last year.
In terms of its Forward EV/Sales, U is trading at 8.42x, 230.3% higher than the industry average of 2.55x. The stock’s forward price/sales multiple of 7.99 is 217.8% above the industry average of 2.51. Regarding its forward price/bookit is trading at 5.84x, 50.9% higher than the industry average of 3.87x.
Negative profit margins
U’s EBITDA margin and trailing 12-month net income margin are negative 41.17% and 54.01%, well below the respective industry averages of 12.86% and 4.21%. The trailing 12-month ROE, ROTC, and ROA of negative 30.98%, 12.64%, and 13.61% compare to their respective industry averages of 6.97%, 3.96%, and 2.64%.
POWR ratings reflect a bleak outlook
Us POWR ratings reflect this bleak outlook. The stock has an overall rating of D, which is Sell in our proprietary rating system. The POWR ratings are calculated considering 118 different factors, with each factor being optimally weighted.
The stock has a D rating, consistent with its stretched valuations. It also has a D rating for momentum, which coincides with the stock trading below its 50-day moving average of $42.21 and its 200-day moving average of $75.35.
U has a stability score of D, in sync with its five-year monthly beta of 1.90.
In the 22 camp Entertainment – Toys & Video Games It is in 21st place in the industry. The industry is rated D.
click here to view the additional POWR ratings for U (Growth, Mood and Quality).
Check out all the top stocks in the Entertainment – Toys & Video Games industry here.
Though the company is growing in the Metaverse space, its near-term prospects appear uncertain. In addition, the sharp decline in U’s earnings in the most recent reporting quarter is worrying. With analysts expecting earnings per share to fall 100% this year (fiscal 2022), the stock is best avoided right now.
How does Unity Software Inc. (U) compare to its competitors?
While U has an overall POWR rating of D, one might take a look at its industry peers, Spin Master Corp. (SNMSF) and JAKKS Pacific, Inc. (JAKK) which have an overall B (buy) rating.
U shares traded at $33.22 per share on Thursday afternoon, down $1.68 (-4.81%). Year-to-date, U is down -76.77% versus a -20.31% gain in the benchmark S&P 500 index over the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets led her to pursue a career in investment research. More…