Cathie Wood Bets Big on Unity Software (U) Stock. Here’s Why.

  • Ark Invest just purchased 1.04 million shares of Unity Software (U).
  • The purchase comes after Unity announced a merger with ironSource (IS).
  • U stock is down more than 75% year-to-date (YTD).
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Unity Software (NYSE:U) stock plunged lower by over 15% yesterday following the release of several company updates. However, this doesn’t seem to have phased Ark Invest’s Cathie Wood. Yesterday, Wood purchased more than 1 million shares through four of her exchange-traded funds (ETFs).

Yesterday, Unity announced a merger agreement with ironSource (NYSE:IS), an application monetization and analytics company. The agreement valued the company at $4.4 billion. As part of the all-stock deal, ironSource shareholders will receive 0.1089 shares of U stock for each share of IS stock owned. After the deal closes, ironSource will become a wholly-owned subsidiary of Unity and Unity shareholders will own about 73.5% of the combined company. Following the close of the transaction, Unity will also initiate a buyback program of up to $2.5 billion.

Unity also bundled a full-year guidance reduction with the agreement news. The company lowered its 2022 revenue guidance to between $1.3 billion and $1.35 billion. Previously, the guidance had been between $1.35 billion and $1.425 billion. Unity lowered this range to reflect its “current assessment of macro trends, product launch and competitive dynamic with our monetization business.”

U Stock: Cathie Wood Purchases 1.04 Million Shares

In response to the news, Ark Invest purchased 1.04 million shares of U stock. These shares were purchased through four ETFs, including the ARK Innovation ETF (NYSEARCA:ARKK) and the ARK Next Generation Internet ETF (NYSEARCA:ARKW). After the purchases, U stock represents the 13th largest position among all Ark ETFs. Furthermore, Ark ETFs have now purchased shares of Unity 13 times since June.

Why exactly did Cathie Wood make these purchases? For starters, Unity has shed over 75% of its market capitalization since the start of the year. The software company can also be seen as a “pick and shovel” type of company for the metaverse industry.

Cathie Wood may also be in favor of the ironSource merger. According to the announcement, the combined company is expected to post a run rate of $1 billion in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) by the end of 2024. Unity CFO Luis Visoso says the company expects to “generate $300 million in annual EBITDA synergies by year three.”

Finally, Unity will receive $1 billion in low-interest funding from Silver Lake and Sequoia. Specifically, the two firms will purchase $1 billion in convertible notes that carry an annual rate of 2%. These notes will be due in 2027. Silver Lake and Sequoia are two of the largest shareholders of U stock.

On the date of publication, Eddie Pan did not hold (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.

Eddie Pan specializes in institutional investments and insider activity. He writes for InvestorPlace’s Today’s Market team, which centers on the latest news involving popular stocks.


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