What Happened:

Shares of game engine maker Unity (NYSE:U) fell 6.4% in the afternoon session after market volatility increased (Nasdaq down 2.5%, S&P 500 down 1.5%) following the underwhelming jobs report, which raised more questions about the health of the economy. The Bureau of Labor Statistics reported that non-farm Payrolls for the month of August 2024 revealed that the US economy added 142,000 jobs. While the growth represented a significant improvement from the previous month (+89k additions), it fell below the 161,000 consensus forecast. In addition, the unemployment rate clocked in at 4.2%, roughly in line with expectations. Following the report, the consensus expectation continued to point to a higher probability of a 25 basis points (0.25%) rate cut during the September 2024 Fed policy meeting.

Overall, the report offered limited clarity on how the new data might influence the Fed's policy decisions in the coming months, as it presented arguments that could support both bullish and bearish perspectives.

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 32 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 3 days ago, when the company gained 9.6% on the news that Morgan Stanley analyst Matthew Cost upgraded the stock's rating from Equal Weight (Hold) to Overweight (Buy) and raised the price target from $22 to $45. Cost highlighted the reason for the downgrade, adding "Following the cut to '24 guidance at 2Q results we now view forward estimates for U as derisked." He added, "From a strategic standpoint, we note that despite its customer relations challenges U's game engine has maintained its 70% market share in mobile and (in our view) proven how deep its moats truly are, as competitors have been unable to gain share at U's expense."

Unity is down 59.3% since the beginning of the year, and at $15.78 per share it is trading 63.1% below its 52-week high of $42.73 from December 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 $230.72.

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