Unity Software Is Downgraded by Oppenheimer on Valuation

Unity's stock 'has run up too soon, too fast for our risk appetite,' says Oppenheimer analyst Andrew Uerkwitz.
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Unity Software  (U) - Get Report, a video game software maker, received a downgrade to perform from outperform from Oppenheimer analyst Andrew Uerkwitz based on valuation.

He withdrew his share-price target of $113. Since going public Sept. 17 at $52, the stock has almost tripled. It recently traded at $148.77, up 0.78%.

Uerkwitz said he still likes the company’s prospects for the short term and the long term. But he “can’t stretch any further on valuation,” he wrote in a commentary cited by Bloomberg. “The stock has run up too soon, too fast for our risk appetite.”

Unity Software’s price-sales ratio stands at 56.32, according to Morningstar. Its stock has outgained other software-as-a service companies since its IPO, Uerkwitz noted.

While the company's market capitalization ($40.3 billion) passed stalwart video game publisher Electronic Arts  (EA) - Get Report last week, he doesn't see Unity matching EA on free cash flow until 2031, Barron’s reported.

Unity’s share-price surge stems from a "thirst for the next generation of gaming," Uerkwitz said. Unity offers investors access to social gaming, live streaming and the "metaverse," he said.

Metaverse is a gaming idea in which popular culture and social interaction join in ever-online virtual worlds, similar to the movie "Ready Player One," Barron’s said.

Unity Software reported a loss of $144.5 million, or 97 cents a share, in the third quarter, widening from a loss of $45.7 million, or 75 cents, in the year-earlier period. Revenue jumped 53% to $200.8 million from $130.9 million.

The FactSet analyst consensus called for a loss of 33 cents a share on revenue of $186.9 million.