Jefferies analysts have reduced their price target for Unity Software Inc. (NYSE:U) from $24 to $16 per share, driven by expectations of a downward revision in Unity’s 2024 guidance. This adjustment follows a recent survey of mobile ad tech, which indicated persistent weakness in Unity’s Grow business, raising concerns about the company’s financial outlook.
The analysts expressed caution, noting that their survey suggests another likely cut in fiscal 2024 guidance, with the Grow segment being a significant factor in the anticipated decline. They are particularly interested in hearing from Unity’s new CEO, Matt Bromberg, regarding his vision for the Create segment and plans to enhance the Grow segment through anticipated improvements in data targeting.
Unity’s stock currently trades at a premium valuation of 14 times 2025 EBITDA, compared to competitor AppLovin, which trades at 10 times. This premium valuation and the recent survey results have led Jefferies to revise their price target downward. The analysts believe Unity’s current guidance implies an unrealistic acceleration in the second half of the year.
The Q2 revenue guidance of a 6-7% decline seems reasonable to Jefferies, but they expect a likely cut in the full-year 2024 guidance, given that the original forecast implied a steep acceleration in the latter half of the year, which recent data does not support.