On Tuesday, HSBC updated its outlook on Unity Software (NYSE:U), increasing the price target to $21.80 from the previous $16.10, while keeping a Hold rating on the stock. The adjustment reflects a more optimistic view on the company's future revenue and valuation multiples.
The firm cites Unity's potential to benefit from a stronger focus on its primary business areas and the possibility of leveraging untapped synergies among its divisions. These positive factors are seen as counterbalances to the challenges the company faces, including heightened competition and risks associated with restructuring efforts.
The new price target is based on a forecast that anticipates Unity's revenue to grow by the fiscal year 2025, applying a 6.3x target multiple on the expected enterprise value to sales ratio for that year. This updated target suggests a slight decline of around 4% from Unity's share price as of September 27, 2024.
HSBC identifies key drivers for Unity's potential growth, such as the increasing adoption of virtual reality solutions that could enhance the company's performance.
Conversely, the firm also warns of potential risks, including the loss of market share to open-source game engines and competitors in the advertising technology sector. These factors contribute to the decision to maintain the Hold rating despite the raised price target.
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