It’s been a strange few days for game software leaders Unity Software (NYSE:U), as the stock price was volatile to start the trading week. The latest drop came just after Unity released a new report on the state of multiplayer gaming and what gamers are looking for in it. The report shows that 77% of gamers worldwide play multiplayer games. Furthermore, many of those gamers make purchasing decisions based on “social factors” involved in potentially purchased titles.
The link between this report and recent stock performance may seem a little weak, but it does prove that Unity is keeping an eye on the gaming market as a whole. That makes it more likely that current trends in it will be followed.
But looking at the whole picture makes me a little nervous. That’s why I’m neutral on Unity at this point; the company is clearly making some steps, but these may not be enough to break the company’s downward momentum.
Investor sentiment is not in favor of Unity Stock
While Unity’s latest report suggests it’s keeping a close eye on the market, it’s also clear that the market is doing the same with Unity, and the market generally doesn’t like what it sees.
Unity currently has a Smart Score of 1 out of 10 on TipRanks. That’s not only the lowest level of underperform, it’s also the lowest level. That makes it clear that the market expects Unity to lag the broader market.
Insider trading at Unity, meanwhile, will not provide real relief for concerned investors. The picture is largely sales weighted and has been for a while. Worse, the total shows that sales were strongest at the company’s peak, but continue into the lows of the year.
In the past three months, there were five sales transactions at Unity and no buy transactions at all. Informational sales rose sharply against the company as insiders sold a total of $1.2 million worth of stock during that time.
In addition, the total for the year is not better. In the past 12 months, Unity insiders have staged 28 buys against 68 sells. Certainly, the pace of sales has slowed down. However, since May 2022, there has not been a single insider purchase.
Knowing is only half the battle for unity shares
Unity’s report is an excellent development. It shows that Unity has a clear eye for developments in practice and how it can respond to them. As a creator of software development tools, Unity needs to understand these things in order to provide its customers with the best product.
Furthermore, Unity takes its own research seriously. The company recently rolled out new features for Game Server Hosting and Matchmaker tools. Such tools open up new possibilities for game designers who want to add multiplayer options to their games.
Game developers should be careful here. While multiplayer options are important, there is a growing movement designed to maintain the concept of single-player gaming. None other than Bethesda Softworks itself made such an attempt in 2017.
The then Senior Director for Global Content, Gary Steinman, has released a blog post called “Save Player One.” The post revealed reasons why the single player game had to survive – and even thrive – in an era increasingly characterized by multiplayer titles.
Yet Unity makes an important connection here. With 77% of gamers around the world playing multiplayer games, it’s worth having a toolset that can connect with those gamers. It’s even better if those tools can also be used for the 23% of gamers who don’t play multiplayer games.
Unity tools produce solid results for both multiplayer and single player games. This allows Unity products to be attractive to developers and used in a variety of end products. Every quality game release made with Unity products is another brick in a wall of marketing opportunities.
Still, there are reasons for concern about Unity. Unity was nearly sold for $17.5 billion to AppLovin (NASDAQ:APP), but Unity’s board opposed the deal. With AppLovin out of the picture, Unity wants to spend $4.4 billion to buy ironSource Ltd (NYSE:IS), one of AppLovin’s competitors.
Macroeconomic issues would also play a role in all of this, albeit not to the extent of some other companies. Video games generally do well in recessionary environments. The 2008 recession demonstrated this resilience as video game systems sold well amid an economic disaster.
More recent research suggests that games are not recession-proof, but recession-proof. A video game falls under discretionary purchasing and discretionary purchasing takes a hit in a recession. However, a video game usually has a long lifespan. A game bought today can provide weeks or even months of gameplay. That makes it a value that is hard to miss.
What is the price target for Unity Software Stock?
As for Wall Street, Unity has an average buy consensus rating. That’s based on nine Buys, four Holds and one Sell allotted over the past three months. Unity Software’s average price target of $58.91 implies an upside potential of 66.51%. Analysts’ price targets range from a low of $27 per share to a high of $105 per share.
Conclusion: Unity Stock can go both ways
Unity balances fairly evenly on the horns of a dilemma. It produces excellent results and that will make it attractive to software developers, especially smaller developers. Nevertheless, there is still a lot up in the air about Unity at this point.
Unity is attractive in its current form. It is trading much closer to its lowest price targets than its average targets. It also has a pretty good roadmap, with an emphasis on multiplayer gaming while also preserving the single player experience. Add to that the generally recession-proof nature of the video game industry, and you should see a lot of interested developers turn to Unity.
However, we can only speculate about what Unity would do with ironSource. That is if the deal even goes through. The nature of the economic downturn – some don’t even believe we’re in a recession yet – also counts.
That leaves me neutral on Unity; there are just too many unanswered questions about it and its involvement in the wider field at the moment.
Revelation
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