Unity downgraded to Peer Perform at Wolfe Research on lack of visibility

Wolfe Research analyst Joshua Tilton downgraded Unity to Peer Perform from Outperform and removed the firm’s prior $38 price target after the company reported Q3 results below consensus on revenue, but above on EBITDA, and announced changes, including removing unprofitable portions of its business, reducing headcount, and focusing on efficiency, which led to its inability to provide Q4 guidance. While the firm continues to view Unity’s gaming engine as market-leading and thinks new pricing strategies and synergies with ironSource could potentially improve growth, the firm lacks visibility into the financial profile over the next twelve months with little color on which of the company’s unprofitable portions of its business will be removed, how aggressive headcount reduction will be, uncertainty around the timing of realized synergies with ironSource, and whether its FY24 target of exiting with a $1B EBITDA run rate remains.