![]() ![]() As a result, we are unlikely to hold U for the long-term and would prefer to use opportunities to buy/sell or even cut potential losses short. Therefore, if we were to add exposure, it would be predicated on a highly speculative basis, given its battered valuation and more constructive price action. Given its growth premium, we have undoubtedly lost confidence with management after its ad tech fumbles in Q1. Hence, we believe the question facing investors now is whether they have faith in management to execute this critical turnaround as it looks to consummate its proposed merger with ironSource. Hence, if Unity could execute well, its Q2 malaise could be its near-term nadir. Unity guided to a much stronger H2, which expects Q4's revenue growth to accelerate to 21%. The consensus estimates (bullish) also concur with management's guidance that it's on track to improve its revenue and adjusted EBITDA sequentially from Q3. Unity revenue change % and adjusted EBITDA change % consensus estimates (S&P Cap IQ) Management highlighted that it has already "fixed" its data problem and looks forward to sequential revenue acceleration moving ahead as it laps a challenging H1. The key thing about probabilistic targeting based on context, though, is that it very much relies on having a whole lot of data to better refine the machine learning models that place ads this merger lets Unity and ironSource combine their data. This is why ironSource in particular has continued to show strong growth throughout the rollout of ATT: not only is the impact less, but the opportunity to gain market share is correspondingly higher. ![]() Stratechery also highlighted in a recent commentary:Īs for ATT, both Unity and ironSource are not nearly as impacted as a company like given that their ads are much more driven by contextual data. However, Unity's ad tech problems were likely "self-inflicted," coupled with the effects of worsening macro headwinds, and less likely due to Apple's ( AAPL) ATT framework. It also continued a fourth consecutive quarter of revenue growth moderation from its peak in Q2'21, consistent with the impact seen in other ad tech players. Unity revenue segment change % (S&P Cap IQ)Īs seen above, its Operate segment posted a revenue decline of 13.3% in Q2, down markedly from Q1's 25.5%. Investors should recall from Unity's Q1 malaise that saw its ad monetization underperformed significantly, impacting the performance of its Operate solutions segment. Unity: Less Challenging Comps From H2 Could Be A TailwindĮven without the accretion from the potential union with ironSource, management highlighted in its Q2 release that it was confident of turning the corner. Therefore, buying sentiments could return decisively even if potential downside volatility could hamper its near-term upside as U closes in on its shareholder vote.Īccordingly, we revise our rating on U from Hold to Speculative Buy, with a price target (PT) of $55 (an implied upside of 33%). ![]() Notwithstanding, the market seems ready to re-rate U moving forward, as it's holding its recent pullback above its May/June lows. However, whether the $4.4B all-stock transaction (valuing IS at 16.3x NTM EBITDA) is appropriate would likely depend on whether CEO John Riccitiello & team can deliver the synergies leading to its estimated combined $1B adjusted EBITDA run rate by the end of 2024. We surmise that Unity's proposal to merge with ironSource should lift its profitability remarkably as it gains a leading ad mediation platform. My unity point update#Given its meaningful retracement, we believe it's appropriate to update investors on whether the current levels are suitable to add exposure heading into the shareholder vote. Its momentum spike leading to its August top was a sign of caution as the market digested the optimism of these investors who chased the summer rally. U has collapsed nearly 30% from its post-earnings August highs, following the broad market pullback. AppLovin's ( APP) "threat" to thwart the proposed union was rejected by Unity's Board, even as all three players have seen their stock performance crumble in 2022. My unity point software#We are less than a month away from the critical shareholder vote on Unity Software Inc.'s ( NYSE: U) planned merger with ironSource Ltd. Steve Jennings/Getty Images Entertainment Thesis ![]()
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