Unity Software U shares have declined 40% year to date (YTD), underperforming the broader Zacks Computer and Technology sector’s appreciation of 29.8%.

It has also underperformed the Zacks Internet - Software industry and its peers, such as Fortinet FTNT, monday.com MNDY and Audioeye AEYE.

In the same time frame, shares of AEYE, FTNT, and MNDY have returned 377.7%, 63.7%, and 49.4%, respectively. The industry has appreciated 35.1% YTD. 

The company’s underperformance can be attributed to declining Grow Solution revenues and non-strategic portfolio revenues. For the third quarter of 2024, Grow Solution revenues declined 5% year over year to $298 million. For the same period, non-strategic portfolio revenues decreased 84% year over year to $17 million due to portfolio reset.

Unity Software Inc. Price and Consensus

Unity Software Inc. price-consensus-chart | Unity Software Inc. Quote

However, Unity Software’s efforts to leverage AI integrated data system to drive stability, efficiency and innovation for users bodes well for investors.

Will Unity 6 Aid U’s Top-Line Prospects?

Unity Software recently launched Unity 6, the latest version of the software that provides stable and efficient results to users. 

U’s Unity 6 aims to aid developers by providing the capability to create better games quickly and efficiently. The latest offering will help maintain consistent feedback loop to deliver tools that will drive productivity for users. 

Unity 6 includes features namely end-to-end multiplayer workflows to fasten development of games, capabilities to allow developers to reach wider customer base by targeting mobile web, and enhancements to improve CPU computation time from 40 milliseconds to 10 milliseconds per computation.  

U has also launched Time Ghost, a real-time cinematic demo to demonstrate the capabilities of Unity 6. 

Further, Unity Software is expanding its product offering in Grow business to ensure scalability and quality for users by developing automated ROAS campaign on ad network as well as diversify ad placements. 

U is undertaking steps to rebuild its machine learning stack, along with its data infrastructure and is leveraging AI to drive ROI for users. 

Unity Software is making efforts to focus solely on its core business with the aim to drive long-term growth prospects.

Unity Software’s Prospect Dull

For the fourth quarter of 2024, the company expects strategic portfolio revenues in the band of $422 million to $427 million.

The company projects the Adjusted EBITDA to be between $79 million and $84 million.

The Zacks Consensus Estimate for fourth-quarter 2024 loss is pegged at 35 cents per share against earnings of 23 cents per share in the year-ago quarter.

The Zacks Consensus Estimate for fourth-quarter 2024 revenues is pegged at $431.91 million, indicating a year-over-year decline of 29.11%.

U’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 67.21%.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

For 2024, U expects strategic portfolio revenues between $1.703 billion and $1.708 billion.

U expects Adjusted EBITDA to be between $363 million and $368 million.

The consensus mark for 2024 loss is pegged at $1.71 per share against earnings of 41 cents per share in the year-ago quarter.

The Zacks Consensus Estimate for 2024 revenues is pegged at $1.79 billion, indicating a year-over-year decline of 18.25%.

U’s Stretched Valuation Concern for Investors

U shares are trading at a premium, as suggested by a Value Score of F.

In terms of the forward 12-month Price/Sales (P/S) ratio, U is trading at 5.48X, higher than the Zacks Internet Software industry’s 3.06X.

However, Unity Software’s expanding product offering and market reach bodes well for investors.

U currently has a Zacks Rank #3 (Hold), which implies that investors should wait for a better time to enter Unity Software shares. 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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