U Stock Alert: Analysts Are Upbeat as Unity Adjusts Pricing Approach


Editor’s Note: This article was updated on Sept. 25, 2023, to correct Marc Whitten’s position as executive of Unity Create.

  • Shares of video game software development firm Unity Software (U) slipped on Monday.
  • Management is attempting to right the ship following a pricing change that angered users.
  • Analysts are encouraged at the longer-term framework for U stock.
U stock - U Stock Alert: Analysts Are Upbeat as Unity Adjusts Pricing Approach

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Attempting to correct a deeply unpopular policy, video game software development specialist Unity Software (NYSE:U) initiated a U-turn recently on its pricing structure. According to Reuters, Unity planned to charge developers each time their games were installed following the achievement of certain milestones. After severe backlash, management walked back some of the most contentious action items. U stock dipped about 1% in Monday’s early afternoon session.

Per Seeking Alpha, Unity announced a shift to a pay-per-download approach, set to start on Jan. 1. Specifically, the new policy called for developers to pay a flat fee anytime a game using Unity’s software was installed. Because the Unity Runtime platform is also installed along with the games, this framework translated to developers being on the hook if a game’s installs significantly exceeded its revenues.

Subsequently, the decision led to fears that smaller and independent developers would be disproportionately impacted. Naturally, this situation fueled bad blood, forcing an apology and some key adjustments to the new pricing structure.

“Our Unity Personal plan will remain free and there will be no Runtime Fee for games built on Unity Personal,” Marc Whitten, executive of Unity Create, said last Friday. Additionally, Whitten added that no game with less than $1 million in trailing-12-month (TTM) revenue will be subject to the fee.

Analysts Generally Enthused About U Stock

In a business ecosystem fraught with measured language, Whitten was direct and to the point. “I want to start with this: I am sorry,” he stated in addressing the gaming development community. To be sure, it may have been a necessary apology given the heat that U stock absorbed.

Per Reuters, Unity initially made its pricing structure announcement on Sept. 12. That day, U stock closed the session at $38.97. Last Friday, shares finished the day at $31.61, resulting in a loss of nearly 19%. Under this context, Monday’s dip of approximately 1% implies a fading of negativity.

Coincidentally, analysts have chimed in on the development, generally seeing an encouraging backdrop for U stock. Morgan Stanley analyst Matthew Cost provided a cautiously optimistic tone. He noted that the financial impact of the underlying runtime fees will be smaller since they will apply to fewer customers.

Still, Cost mentioned that if Unity successfully launches its new pricing policy, it would introduce a variable cost to the development platform, which represents a “fundamentally bullish development.”

Wedbush was much more upbeat, stating that the new approach could “materially grow Unity’s revenue and profits in late 2024 and beyond.” Also, Wells Fargo chimed in, stating that “U’s concessions (and, importantly, framing thereof) seem sufficient to appease developers while retaining most of the value captured by the original pricing mechanism.”

Why It Matters

According to TipRanks, analysts overall rate U stock a consensus moderate buy. Among the key evaluations include Wedbush’s “outperform” rating and a $55 price target, implying over 75% upside potential. On average, the experts’ price target lands at $49.96, implying nearly 60% growth.

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.

Article printed from InvestorPlace Media, https://investorplace.com/2023/09/u-stock-alert-analysts-are-upbeat-as-unity-adjusts-pricing-approach/.

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