Unity Drops 6% as Benchmark Starts at Sell, Sees 25% Downside Risk on Metaverse Hype Peak

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Benchmark analyst Mike Hickey started research coverage on Unity Software (NYSE:U) at Sell with a $27.00 per share price target, signaling a potential downside of about 25%.

The analyst argues that investors are less and less interested in the metaverse story as the hype around this theme “punctuated the peak of a momentum market that has now expired.”

Hickey’s concerns are more about the near-term as “normalized player behavior in a post-pandemic scenario should dampen elevated trends.”

“We think a potential economic recession would impact consumer discretionary spend, dampen game development as growth capital becomes more expensive, and challenge mobile advertising spend as budgets contract. We think continued privacy and regulatory changes on mobile operating systems could increase customer acquisitions costs and challenge advertisement growth. We are anxious over a growth focus outside of Unity’s core game market, as we see suspect limited synergistic value. We are concerned investment on metaverse scenarios may slow as customers operational targets rotate from aspirational to profit generative,” Hickey told clients in a note.

Still, the analyst remains positive on U stock as the business offers “investors a unique and compelling long term growth opportunity.”

Unity shares are set to open almost 6% lower today.