Unity Software’s new bulls see ‘ample runway for growth’ (NYSE:U)

Oppenheimer initiates Unity Software (NYSE:U) with an Outperform rating and $103 price target, calling the company a “proven success story, run by a visionary management team.”

The firm says Unity is successfully taking share in the $12B video game market and “beginning to see adoption of real-timer 3D content creation,” a $17B market.

Key quote: “Unity operates as a leader in a fast growing, massive video game market with substantial optionality outside of its established market segments to benefit from a proliferation of real-time 3D content applications.”

Credit Suisse starts Unity at Outperform and a $120 price target, viewing Unity as a “highly unique software platform selling into rapidly transforming and growing end markets, with multiple paths to potential revenue upside.”

Key quote: “Today, gaming represents the vastmajority of revenues, although the runway in non-gaming verticals remains significant. While nascent, industries such as Film (virtual studios/movie sets), Architecture, Engineering and Construction (building design and simulation) are rapidly embracing RT3D content. We size this combined market opportunity at $26bn globally and it is evolving rapidly. Under this framework Unity is currently ~3% penetrated, offering ample runway for growth.”

Unity Software shares are up 0.5% pre-market to $90.46.

Other bullish Unity initiations: Goldman Sachs, $100 price target; Piper Sandler, $112.

Hold/Neutral starts: BofA, $96; Barclays, $97; Stifel, $80.

Previously: Unity Software opening indication continues to rise at $73-$75, +44% from IPO (Sep. 18 2020)

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Beyond Meat, Cimarex, Cloudflare, CSX, Exxon, Micron, NetApp, Unity Software and More

Stocks had been rising daily, but Tuesday’s market indexes were showing a small bit of selling pressure heading into earnings season. Many investors missed out on the recovery since late March, but many of the key leadership stocks have pulled back from their highs to more attractive entry points.

24/7 Wall St. reviews dozens of analyst research reports each day of the week with a goal of finding new ideas for investors and traders alike. Some of these daily analyst calls cover stocks to buy. Other calls cover stocks to sell or avoid. Remember that no single analyst call should ever be used as a basis to buy or sell a stock. Consensus analyst target data is from Refinitiv.





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These are the top analyst upgrades, downgrades and initiations seen on Tuesday, October 13, 2020.

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Alaska Air Group Inc. (NYSE: ALK) was raised to Positive from Neutral with a $57 price target (versus a $38.41 a prior close) at Susquehanna.

American Airlines Group Inc. (NASDAQ: AAL) was downgraded to Negative from Neutral with an $8 price target (versus a $12.92 prior close) at Susquehanna.

American Water Works Co. Inc. (NYSE: AWK) was downgraded to Neutral from Outperform at Janney, which noted that the latest close at $158.32 has exceeded its fair value estimate of $153.00.

Beyond Meat Inc. (NASDAQ: BYND) was downgraded to Underperform from Market Perform with a $136 price target (versus a $192.30 prior close) at Bernstein.

Biohaven Pharmaceutical Holding Co Ltd. (NYSE: BHVN) was reiterated as Outperform and its price target was raised to $99 from $96 (versus a $78.23 prior close) at Wedbush Securities.

Carlyle Group Inc. (NASDAQ: CG) was raised to Buy from Neutral with a $31 target price (versus a $26.89 prior close) at Citigroup.

Cimarex Energy

How Unity Software Could Surpass Autodesk In 5 Years

The team of Doug Clinton and Steve Van Sloun at Loup Ventures made a bullish case for Unity Software (NYSE: U), a company in which they have owned a stake since before the IPO in a blog post. 



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“Unity is on the road to becoming the next great creative software company,” Clinton and Van Sloun said. 

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Unity offers three major elements for a long-term thesis, the tech venture capitalists said: gaming as a social network, physical and virtual worlds merging and the growth of augmented and virtual reality.

Loup Ventures compared Unity to Adobe Inc (NASDAQ: ADBE) and Autodesk Inc (NASDAQ: ADSK), two publicly traded creative software companies.

Adobe, Autodesk Parallels: Loup Ventures notes that many of Unity’s customers are also using Adobe Creative Cloud and Autodesk products like AutoCAD, Revit and Maya.

Loup Ventures believes Unity has a shot at hitting the market caps of Adobe and Autodesk in the long term.

Current valuations show Unity trading at 24.6x enterprise value/2021 revenue estimates compared to 15.5x for Adobe and 11.8x Autodesk.

“Unity deserves a higher multiple in part as it is growing twice as fast as Adobe and Autodesk,” Clinton and Van Sloun said. 

Unity’s revenue was up 39% in the first half of 2020, compared to 14% and 17% increases from Adobe and Autodesk, respectively.

Related Link: Unity Software Opens Well Above IPO Price

Unity’s Growing Subscriber Base: Unity Software will have to add 3.3 million paid subscribers and 10.1 million paid subscribers to match the respective totals of Autodesk and Adobe.

Those figures are based on an average revenue per subscriber of $880.50 for Unity Software, Loup Ventures said. 

The average revenue per subscriber figure from Unity is much higher than the $435.10 and $695.53 seen from Adobe and Autodesk, respectively.

How much Unity pays its employees: salaries, job listing

Unity paid a Lead Backend Engineer in California a salary of $225,000

An Oculus Quest all-in-one VR device is shown in an undated 2019 photo released by Facebook January 22, 2020. Facebook/Handout via REUTERS

Oculus Quest all-in-one VR device.

Reuters


Engines require engineers. A majority of the jobs Unity hired for from overseas candidates were engineering positions. These workers help determine the broad swath of what Unity’s software can do. Some were common positions in software development, like backend engineers who work behind the scenes. Others were more idiosyncratic, like a “Robotics Simulations Engineer.”

Backend Engineer: $140,000 – $117,770

Backend Engineer, Monetization: $140,000 – $117,770

Backend Software Engineer, Golang: $159,000 – $137,259

Dev Ops Engineer: $120,000 – $81,141

Engineering Manager: $175,000 – $160,701

Full Stack Engineer, Monetization: $140,000 – $119,122

Full Stack Engineer, Monetization Engineering: $165,000 – $137,259

Lead Backend Engineer: $225,000 – $156,749

Lead engineer: $140,000 – $117,770

Lead Virtual Reality Engineer: $190,032 – $153,795

Machine Learning Engineer: $160,000 – $113,381

Machine Learning Graphics Engineer: $165,000 – $140,670

Robotics Simulations Engineer: $130,000 – $104,291

Senior Data Engineer, Monetization: $205,000 – $168,958

Senior Engineer, Monetization: $200,000 – $156,749

Senior Software Development Engineer in Test: $190,000 – $156,749

Senior Software Engineer, Machine Learning: $185,210 – $137,259

Software Development Engineer in Test: $175,600 – $153,795

Software Development Engineer in Test, Cloud Live Production: $150,000 – $124,134

Software Development in Test, Platform Foundation: $190,200 – $156,749

Software Engineer: $158,000 – $101,546

Software Engineer, Backend: $150,000 – $122,824

Software Engineer, Data: $142,000 – $117,770

Software Engineer, Desktop: $120,000 – $101,546

Software Engineer, Distributed Systems: $132,000 – $82,000

Software Engineer, Machine Learning: $167,500 – $122,824

Software Engineer, Monetization: $145,000 – $117,770

Software Engineer, Monetization DevOps: $140,000 – $117,770

Staff Data Engineer, Monetization: $200,000 – $156,749

UI Tools Engineer: $135,000 – $101,546

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Why Unity Software Stock Spiked Today

What happened

Shares of Unity Software (NYSE:U) are climbing today after an analyst initiated coverage of the company on Friday with a buy rating. Shares jumped by as much as 10.3% this morning, before settling slightly lower. As of 11:25 a.m. EDT, Unity’s stock was up 8.9%. 

So what

D.A. Davidson analyst Franco Granda started his coverage of the stock at the end of last week with a price target of $100. Investors have been excited about Unity ever since the company went public less than two weeks ago, and the buy rating Granda slapped on the stock helped push shares up even higher. 

Since the company’s initial public offering (IPO) on Sept. 18, Unity’s shares have climbed 43%.  

Red and green graphs on a dark background.

Image source: Getty Images.

Unity makes software that’s used by video game publishers and competes with Epic Game’s Unreal Engine. Granda believes that Unity’s software will not only benefit from the vast gaming industry, but that it also can be used for other purposes, like filmmaking.

Some investors may also be optimistic that Unity may benefit from Epic Games’ colossal fight with Apple over in-app purchases. If some companies view Epic as the software creator that’s willing to bite the hand that feeds it, they may be more inclined to choose Unity’s software, instead.

Now what 

Unity is a young company with a recent IPO, which means that investors can likely expect some big price swings right now. And with one of the company’s biggest competitors in a very public legal battle with Apple, it’s possible Unity’s shares could fluctuate based on news that comes out of that skirmish.

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