Morgan Stanley’s Best Overweight & Quality Stocks: Top 25 Stocks

24. Unity Software Inc. (NYSE:U)

Number of Hedge Fund Holders In Q2 2024: 34

Average Analyst EPS % Revision: -2.7%

Unity Software Inc. (NYSE:U) is a software company that provides tools to developers to create video games. It is a sizeable company with operations in Europe, the US, and China along with a platform that supports consoles, PCs, headsets, and handhelds. Given the fact that it focuses exclusively on video games, Unity Software Inc. (NYSE:U)’s hypothesis is primarily dependent on consumer spending and a steady stream of titles to attract users to its titles. Additionally, being a software company also. allows it to benefit from a high margin business. Unity Software Inc. (NYSE:U)’s shares are down 42% year to date, while peers like EA have gained 5.9%. This means that the gaming company’s troubles are of its own doing, and stem primarily from a pricing error last year which saw it try to charge fees based on the number of users installing a game. The decision was not well received, and Unity Software Inc. (NYSE:U)  followed it up by reducing its workforce. During Q2, Unity Software Inc. (NYSE:U)’s revenue dropped by 16% and it slashed guidance for the year to a midpoint of $1.685 billion. Morgan Stanley is optimistic though, as it believes that the share price drop and the guidance cut have now removed the risks from the share. The bank also believes that Unity Software Inc. (NYSE:U) commands a 70% mobile game engine market share which provides it with a stable market to navigate through.

Carillon Tower Advisors mentioned Unity Software Inc. (NYSE:U) in its Q2 2024 investor letter. Here is what the fund said:

“Unity Software, a leading provider of mobile game development and monetization software, saw shares decline as the company detailed a restructuring strategy that will take some time to realize. Unity plans to divest its unprofitable and lower-margin segments such as professional services and to reaccelerate growth rates through product development and new partner distribution strategies. We expect the company to be largely through the transition by late 2024, and we believe investors should begin to anticipate the positive 2025 outlook well in advance.”