© Reuters. Unity Software’s (U) Subscription Base Could Exceed $1bn by 2025 – Piper Sandler
By Sam Boughedda
Piper Sandler analysts upgraded shares of Unity Software (NYSE:) to Overweight from Neutral, lowering the firm’s price target on the stock to $38 from $42 in a note to clients Friday.
The analysts explained that the 45% sell-off since Unity’s report last quarter and 80% year-to-date decline factors in considerable execution risk for a business model with gaming and ad exposure heading into a recession.
“That said, Unity remains a strategic 3D creator platform with a subscription base that could exceed $1B by 2025. We upgrade to Overweight from Neutral ahead of an expected November buy-back ($2B+) and pending IS merger that could help buoy shares now valued at 5.9x CY23E EV/S on a post-merger basis,” wrote the analysts.
The analysts added that the firm sees a path to $1 billion in subscription revenue, “assuming the doubling of 3D creators, designers, and artists to ~540K paid users alongside a 9% ASP uplift.”
“Industry weakness in gaming and ads has overshadowed bright growth prospects within 3D software,” they commented. “Patient growth investors with a 2-3 year outlook could realize both earnings and multiple expansion going forward for a generational 3D creator platform with high barriers to entry.”
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