Gaming software company Unity Software (NYSE:U) struggled for traction on Wednesday as its management team announced layoffs. By mid-afternoon trading, U stock rose 1% after spending most of the day in the red.
According to a Form 8-K filed with the U.S. Securities and Exchange Commission (SEC), Unity will eliminate approximately 600 employee roles or 8% of its workforce for the ultimate purpose of repositioning for profitable growth. Overall, the Unity layoffs represent another victim of rising fears of economic instability and a recession.
According to the filing:
“Unity estimates that it will incur approximately $26 million in charges in connection with the restructuring, which are substantially all cash expenditures and which will be substantially incurred in the second quarter of 2023. These charges primarily relate to employee transition, severance payments, and employee benefits.”
The 8-K provided is scant in detail. According to CNBC, a Unity spokesperson declined to provide additional commentary.
Launched in 2004, “Unity has become a major player in game creation over the past decade by giving developers the tools to create 3D titles for phones, consoles and the web without having to code for each platform,” stated the news agency.
In the capital market, U stock failed to sustainably capitalize on its core relevancies. Per CNBC, Unity went public in 2020, pricing shares at $52 a pop. The terms valued the company at $13.7 billion. At the time of writing, the market capitalization is around $9.5 billion.
Unity Layoffs Another Casualty of the Broader Tech Rout
According to The Wall Street Journal, a round of Unity layoffs impacted more than 200 employees near the beginning of this year. At the time, management stated that the reductions were partly a response to adverse economic trends, particularly the weak digital advertising market. U stock got off to a promising start to the new year until mid-February, when shares started plunging.
Not helping matters was growing skepticism among analysts regarding Unity’s full-year forecast, given weak Q1 guidance and shrinking ad spending. Notably, U stock has been volatile recently, dropping about 22% of market value in the trailing month.
The latest Unity layoffs come against the backdrop of technology sector weakness. Since inflation skyrocketed last year, the tech ecosystem bore the brunt of the pink slip distributions. However, recent headcount reductions impact other segments of the economy, posing concerns for all enterprises.
In addition, U stock — like other publicly traded assets — must navigate the forward implications of First Republic Bank’s failure. Representing the third bank failure this year, the news reignited concerns about broader financial stability.
Why It Matters
Despite the layoffs, analysts overall remain positive on the underlying enterprise, rating shares a moderate buy. Per TipRanks, the average price target stands at $41.90, implying nearly 67% upside potential.
On the date of publication, Josh Enomoto 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.
