Unity’s Stock (U) Pulls Back From Highs, Downgraded To Sell

Unity Software's stock (NYSE: U) came under some pressure on Wednesday, as BTIG downgraded the stock from Neutral to Sell, setting a price target of $25. The downgrade casts a shadow over the company ahead of its August 6th earnings report, prompting investors to reassess the sustainability of Unity’s recent rally.

Yesterday the stock closed at $33.41, reflecting a 2.4% drop on the day, as the pullback from the recent high extends above 10%, into correction territory.

With the stock having doubled over the past year (+114%), BTIG's analyst argues that the market's enthusiasm is overblown. They believe the surge doesn't accurately reflect the underlying improvements needed in Unity's core business, specifically its ability to recapture market share in the gaming sector and the evolution of its Create platform.

BTIG is not alone in expressing caution. Analyst forecasts reflect mixed sentiment, with price targets ranging from $15 to $44. The average analyst target sits at $27.40, indicating a potential downside from the current trading price.

Unity's financial performance in the last reported quarter showed some positive signs. The company reported earnings per share (EPS) of $0.24, surpassing estimates of $0.12. Revenue also beat expectations, coming in at $435 million against an estimate of $416.14 million.

However, the upcoming quarter's estimates are more modest, with an expected EPS of $0.13 and revenue of $427.37 million.

The next earnings report on August 6th will be crucial for Unity. Markets will be closely watching for updates on the company's progress in recapturing gaming market share, the performance of its Create business, and the overall impact of the advertising model upgrade.