What Happened: Shares of game engine maker Unity (NYSE:U) jumped 6.5% in the afternoon session after The Federal Reserve maintained its key interest rate for the third consecutive time, holding it within the targeted range of 5.25%-5.5%.
Additionally, committee members signaled a more dovish stance for 2024, anticipating at least three quarter-point rate cuts, roughly aligning with market expectations but more accommodative than Fed officials' previous statements. The market is focusing on this change.
The Fed Chair added that "Inflation has eased from its highs, and this has come without a significant increase in unemployment."
In line with the Fed's assessment, on December 12, 2023, the Bureau of Labor reported a slight decline in inflation, attributed to lower gasoline prices and a general easing of price pressures in the U.S. The consumer price index (CPI) for November showed a 3.1% increase from the previous year (in line with market expectations), down from 3.2% in October, indicating ongoing disinflationary pressures.
As a reminder, lower rates are good for stock valuations, especially for tech companies where the market needs to discount back cash flows further out in the future. When the math is done to discount these cash flows back to today, a lower assumed discount rate leads to higher present values.
Is now the time to buy Unity? Find out by reading the original article on StockStory.
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 biggest move we wrote about over the last year was 7 months ago, when the stock gained 11% on the news that the company reported a "beat and raise" quarter. First quarter results exceeded analysts' revenue, adjusted EBITDA, and earnings per share estimates. However, the company continued to burn cash, and gross margin deteriorated. Revenue guidance for the next quarter came in above Consensus, and the full year guidance was lifted. Adjusted EBITDA guidance also exceeded estimates for the next quarter and the full year. Management added more color to the guidance, noting that "for the balance of 2023, we expect revenue to grow faster than the markets in which we compete, with steady and meaningful continued progress on profitability." This is bullish as it signals market share gains while also achieving operating leverage on expenses. Also the strong guidance should give investors additional reason to be optimistic.
Unity is up 30% since the beginning of the year, but at $34.99 per share it is still trading 27.9% 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 $511.85.
