BofA Downgrades Unity Software: 'Most Of Near-Term Upside Is Priced In'
Unity Software Inc (NYSE: U) shares are moving to the downside after an analyst at BofA Securities downgraded the stock.
The Unity Software Analyst: Ryan Gee downgraded shares from Neutral to Underperform but hiked the price target from $102 to $127.
The Unity Software Thesis: The twofold bull case thesis on Unity Software: Its pricing power and expanded utility into non-Gaming has been priced into the stock, given that the stock has risen three times since its IPO, Gee said in a note.
With its $40 billion market cap, Unity Software is equal to all public U.S. and EU mobile developers together, and about 40% larger than its current total addressable market.
Related Link: Unity Software Analysts Assign Triple-Digit Price Targets On Gaming Strength, Future Growth Verticals
The company's long-term position, the analyst said, is not a concern because its utility precludes switching and may enable price raises. However, the company faces headwinds to the pace of non-Gaming subscriber growth, given large established peers, higher ASP and the likelihood of immaterial operational expansion.
BofA's long-term valuation model implies an enterprise value of about $38 billion or $127 per share, and assumes about 850,000 subscribers by 2025 from 13,000 in 2020, with 18% CAGR or Gaming and 90% CAGR for non-Gamimg, Gee said.
The upside case, the analyst said, will yield about 22% upside to the stock, but would require greater conviction that the company can double Gaming subscribers and grow non-Gaming to about 40% of Autodesk, Inc. (NASDAQ: ADSK), as well as sustain strong Ads growth and net revenue expansion trends.
"We feel that at 37x 2022E EV/Sales vs. 25x for High-Growth SaaS peers that most of the N.T. upside is priced in," BofA said in the note.
U Price Action: Unity Software shares traded around $146.75 at publication time after dropping to an intraday low of $142.78.
(Photo: Unity Software)
Latest Ratings for U
Jan 2021 | B of A Securities | Downgrades | Neutral | Underperform |
Jan 2021 | Credit Suisse | Assumes | Outperform | |
Nov 2020 | Piper Sandler | Maintains | Overweight |
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