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Investing.com - BofA Securities assumed coverage on Unity Software (NYSE:U) on Thursday with an Underperform rating and a $15.00 price target. The stock, currently trading at $24.15 with a market capitalization of approximately $10 billion, appears overvalued according to InvestingPro analysis.
The research firm expressed skepticism about Unity’s game engine’s ability to create additional shareholder value through its seat-based subscription sales model. Despite maintaining a healthy gross margin of 74.8% and a strong liquidity position with a current ratio of 2.74, BofA also questioned whether Unity’s substantial investment in its game engine could effectively monetize through advertising.
BofA noted that while 70% of mobile games run on the Unity Engine, only approximately 10% of developers actually pay for the service. The firm believes the low probability of financial success and longevity limits most casual game developers’ willingness to pay for large teams of users. InvestingPro data reveals that Unity remains unprofitable over the last twelve months, though analysts predict profitability this year.
The research firm highlighted that Unity previously attempted to tie revenues to content consumption but ultimately abandoned this approach after facing developer backlash. This contrasts with almost every other game engine BofA researched, which monetizes through content sales or operates as open source.
Unity Software provides a platform for creating and operating interactive, real-time 3D content across mobile phones, tablets, PCs, consoles, and augmented and virtual reality devices.
In other recent news, Unity Software reported a significant earnings beat for Q1 2025, with earnings per share (EPS) reaching $0.24, doubling the forecasted $0.12. Revenue for the quarter was $435 million, surpassing the expected $417.13 million, highlighting strong operational efficiency and effective cost management. Despite these positive financial results, Unity’s stock experienced a slight decline, reflecting investor caution amid revenue declines in key segments such as Grow and Create. Meanwhile, Morgan Stanley (NYSE:MS) adjusted its outlook on Unity Software, raising the price target from $12 to $15, citing strong Q1 results and a forecasted increase in operating margins for 2025 and 2026. In contrast, Stifel reduced its price target for Unity Software from $35 to $28, maintaining a Buy rating due to conservative guidance for the second quarter overshadowing strong performance in the Grow business segment. Macquarie maintained a Neutral rating with a $24 price target, acknowledging Unity’s solid quarterly performance and progress with the Unity Vector platform. Additionally, Unity Software faced executive changes with the resignation of Chief Technology Officer Steve Collins after six months, adding to the company’s ongoing internal challenges.
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