Apple‘s Privacy Move Could Benefit Unity Software Stock
Shares of videogame developer tools maker
are rallying Wednesday, as Wall Street turned increasingly bullish on the company after a strong quarter.
Unity stock (ticker: U) has advanced 10.4%, to $118.34, in recent trading on volume approaching double its 60-day average. Unity priced its initial public offering at $52 last September.
As big videogame publishers struggle with the effects of reopening economies, Unity reported a narrower-than-expected loss on an adjusted basis and revenue that topped analyst estimates. The company also said when it reported results after the closing bell Tuesday that it was acquiring a desktop streaming software business called Parsec for $320 million in cash.
Wall Street cheered, with at least five analysts raising target prices, according to Barron’s count. Eleven analysts rate the stock a Buy, two have a Hold rating, and a single analyst rates it a Sell. The average target price is $130.
Investors had been wary about ad-tracking changes that
(AAPL) made in April to apps on its mobile platforms, writes Stifel analyst Tom Roderick, but Unity executives have been resolute that the damage would be limited to $30 million on the top line for the full year.
“The results are in—at least for now—as Unity posted a $32 million revenue beat for the quarter,” he said. Roderick raised his target price to $135 from $125.
The company’s ad revenue is included in its Operate Solutions segment, which grew 63%, to $182.9 million, accounting for most of the company’s revenue beat. Executives in the conference call Tuesday said the company’s ads used contextual advertising models that don’t rely on data affected by Apple’s changes. Unity uses data based on user engagement and platform performance.
Credit Suisse analyst Stephen Ju wrote that Unity’s second-quarter ad performance suggests the company is emerging as a beneficiary of the tracking changes—unlike many other ad businesses. As a result, it’s gaining market share, he wrote. Ju maintained his $170 target price and Outperform rating on the stock.
Morgan Stanley analyst Matthew Cost wrote that Unity’s strong second-quarter ad results suggest that Apple’s tracking changes could have a positive effect on other small ad networks.
(APP), Cost said, might be one such example because it has similar capabilities as Unity and is roughly a similar size. Cost increased his target price on Unity to $120 and reiterated his Equal Weight rating.
Unity logged a second-quarter loss of 52 cents a share on revenue of $273.6 million. The company reported a non-GAAP loss of two cents a share, when analysts had modeled an adjusted loss of 12 cents a share and revenue of $242.2 million.
Unity’s non-GAAP loss excludes a $85.4 million expense for stock compensation and a $49.8 million expense for a lease termination, among other items.
Unity said it expected third-quarter revenue of $262.5 million at the midpoint of its guidance, below the $264.3 million analysts modeled. It didn’t provide a per-share or net income forecast. For the full year, the company said it expected revenue of $1.1 billion, at the midpoint of its guidance, which matches the consensus forecast.
Write to Max A. Cherney at [email protected]