Unity (U) Stock Trades Down, Here Is Why

Adam Hejl /
2024/01/09 2:19 pm EST

What Happened:

Shares of game engine maker Unity (NYSE:U) fell 7.3% in the afternoon session after the company announced plans to cut around 25% of its workforce, or approximately 1,800 jobs, as part of a restructuring effort to refocus on its core business and drive long-term profitability. Unity expects the business to incur costs related to employee transition, severance payments, and benefits, with the majority expected in the first quarter of 2024. The stock is likely down as investors try to reassess the business's path forward, with the restructuring efforts adding an element of uncertainty to near-term growth projections.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Unity? Access our full analysis report here, it's free.

What is the market telling us:

Unity's shares are very volatile and over the last year have had 56 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The previous big move we wrote about was 7 days ago, when the company dropped 5.5% on the news that Piper Sandler analyst Brent Bracelin downgraded the stock's rating from Neutral (Hold) to Underweight (Sell). Despite the downgrade, the analyst remained positive about the outlook for the software sector and highlighted names such as Workday, Snowflake, and monday.com, which have been added to the Top Ideas list. 

Separately, the major indices continued to retreat. Interest rates rebounded a bit, and investors may be continuing to take profits after a strong calendar 2023. Other than that, we found nothing more specific for the broad move downward. As a reminder, 2023 was a stellar year for the markets, with the S&P 500 surging by almost 25% and the NASDAQ Composite up over 40%. The final month of 2023 was notably strong, marked by a rally in equities and bonds.

Unity is down 7.6% since the beginning of the year, and at $35.88 per share it is trading 26% below its 52-week high of $48.50 from July 2023. Investors who bought $1,000 worth of Unity's shares at the IPO in September 2020 would now be looking at an investment worth $524.38.

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