Unity Software Just Spent $1.6B on Weta Digital. What Does That Mean for U Stock?

In the space where entertainment and innovative technology intersect, two companies are about to join forces. Unity Software (NYSE:U), a software and video game developer noted for its work within the areas of gaming engines and visual assets has announced its plans to acquire Weta Digital, the VFX (visual effects) company founded by celebrated film director Peter Jackson, in a deal worth $1.6 billion. Although Weta is best known for its work on the Lord of the Rings films, its filmography is long and distinguished. U stock was quick to react positively to the news of the acquisition.

The Unity Software website is displayed on a laptop screen.
Source: Konstantin Savusia / Shutterstock.com

What Happened With U Stock

Unity saw shares decline yesterday when news of the deal first broke, even after the company reported earnings that exceeded estimates from Wall Street analysts. Today, things have looked much better for U stock, though, with shares rising almost 5% as of this writing. This is an impressive rebound after the previous afternoon’s declines of almost 7%.

Overall, it’s been an excellent season for U stock, which is up almost 20% for the past five days and 32% for the month. Additionally, the past six months have seen it rise by 120%. Cathie Wood was bullish on it in September and continued this stance into October.

Why It Matters

You may not be familiar with Weta as a company, but you definitely know its work. The digital effects innovator has worked on many popular sci-fi and fantasy films since its founding in 1993. Some notable titles include James Cameron’s Avatar and the Marvel Avengers franchise.

For a company heavily invested in 3D innovation and video game technology, this merger makes a lot of sense. Weta has been behind several popular films of the past two decades, many of which were noted for their effects. This acquisition nets Unity the use of Weta’s innovative VFX platforms, which will enable the company to further develop its gaming technology.

Furthermore, companies looking to gain further market share in the video game space are facing a rare opportunity as gaming giant Activision Blizzard (NASDAQ:ATVI) faces criticism amid product delays. Other gaming developers such as Take-Two Interactive (NASDAQ:TTWO) and Zynga (NASDAQ:ZNGA) have enjoyed months of growth despite a fairly rough season.

What It Means

The benefits for both companies aren’t confined to gaming production, though. The statement issued by Unity indicates that it plans to work on democratizing the process of graphic and VFX development to bring Weta’s industry leading tools to the public. This portfolio includes Manuka, Lumberjack, Loki, Squid, Barbershop, HighDef and CityBuilder, as well as others. Unity’s vision includes making them all available to creators across the world through a cloud-based network.

This is an exciting development not just for both companies but for the entire industry. Unity is going to be busy as it works to make good on these plans. And as it does, U stock is absolutely worth watching.

On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


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