Unity Software began trading on public markets on Friday, and CNBC’s Jim Cramer advised investors to follow the same buying strategy he laid out for the debuts of other companies earlier this week.
“Unity’s following the same script as every other deal this week, from Snowflake to JFrog to Amwell: It’s a good company with a stock that’s way too expensive at these levels” for retail investors, the “Mad Money” host said.
“I think patience is a virtue.”
The video game software developer closed at $68.35 in its market debut after shares were priced at $52 — above its range of $44 and $48 — in an initial public offering, raising about $1.3 billion. The stock opened on the New York Stock Exchange at $75 and peaked before noon at $76.79.
Unity helps game developers produce content and is behind many hit mobile games on the Apple Store and Google Play. The platform is also used for interactive, real-time and 3D applications with end markets not limited to architecture, engineering, construction, media, entertainment and automotive.
Game makers such as Take-Two Interactive have their own in-house programs to develop content, and Epic Games is a privately held competitor in the space. Cramer likes Unity, though, for its position among mobile apps and smaller independent companies.
“Like all the other red-hot IPOs we’ve seen this week, you need to let Unity cool down before you even think about touching it,” said Cramer, who owns a stake in Take-Two as part of his charitable trust. “I’d consider this one enticing around $50 or maybe less.”
Unity projects its total addressable market to be $29 billion, primarily in gaming. The company’s growth rate slowed thus far this year, registering 39% in the first half of 2020 compared with 42% growth in 2019. That year Unity posted revenue of $541.8 million, up from $380.7 million in 2018. The firm also posted a steeper loss of $163.2 million, 24% more than it lost the year prior.
Cramer said the stock should be bought at more attractive levels, given that Unity lacks exponential revenue growth or earnings prowess to justify its price-to-sales multiple, which values a stock based on the underlying company’s revenue forecasts.
“If they can maintain the current growth rate and generate some positive earnings before interest and taxes, then I’d be willing to bless paying up for this one, but they’re not there yet,” Cramer said. “For now, I can’t get behind Unity at 24 times sales, or even 18 times sales, where it came public this morning.”
Disclosure: Cramer’s charitable trust owns shares of Take-Two Interactive.