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Unity Software Guidance Cited as Disappointing by Analysts

Unity Software beat expectations in its latest earnings report, but shares fall sharply on weak guidance.
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Analysts voiced concerns about Unity Software  (U) - Get Unity Software, Inc. Report Friday after the video game engine offered lackluster guidance in its quarterly earnings report.

Shares of the San Francisco company were sliding 10.9% to $133.55 at last check.

Unity Software, which beat Wall Street's fourth-quarter estimates on Thursday, said it expects $210 million to $220 million in first-quarter revenue. Wall Street is looking for $214.7 million in revenue.

The company, which operates a real-time 3D development platform, forecast $950 million to $970 million in revenue for 2021. Analysts on average are calling for $956.1 in revenue.

Analysts at Berenberg, who have a buy rating on the stock with a $106 price target, said that the guidance “clearly disappointed the buy side expectations,” which may have thought Unity would break even on an annual free-cash-flow basis ahead of a 2022 timeline target.

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D.A. Davidson noted that while there were "no stand-out negatives" in the results, shares are falling due to “the lack of upside on the in-line 2021 guide, given the high expectations embedded in the current valuation.”

Analysts at the firm have a buy rating on the company with a price target of $175, and said they would buy the stock on weakness.

Bloomberg Intelligence said the outlook “may not be strong enough for the most bullish investors, as its stock trades at about 40x forward sales, a significant premium to design software peers.”

Unity Software “did everything right” in the fourth quarter, according to Wedbush analysts, but “had some trouble with explaining its flight path to future growth. Wedbush rates the company as outperform, with a $175 price target.

Analysts at William Blair, who rate the company outperform, said the outlook is “prudently conservative.” The firm remains “encouraged by the long-term prospects of the business.”