Wall Street appeared to breathe a sigh of relief as Unity Software Inc.’s chair and chief executive, John Riccitellio, left the company he helped take public following a nasty feud with videogame developers over new fees.
Unity shares
U,
+1.08%
rallied as much as 6.5% to an intraday high of $31.66 Tuesday amid optimism that the leadership shake-up at the game-engine and game-ad-monetization company could help restore trust within the developer community.
DA Davidson analyst Franco Granda said the departure “did not come as a surprise due to the sheer magnitude of the problem the controversial pricing changes announced last month became, with some customers pledging to switch vendors.”
As developers railed against the new fees and questioned whether they were in line with the company’s terms-of-service agreements, they appeared to lose trust in Unity, and particularly in Riccitiello.
“This was the straw that broke the camel’s back after a few blunders from the company in recent years (the gaming community does not forgive easily),” Granda wrote, adding that it was important that Unity backed its prior guidance. He further suggested investors may want to look at shares of rival AppLovin Corp.
APP,
-0.78%.
Following a tone-deaf rollout of new developer fees for each time a developer’s game was downloaded, Unity apologized to the developer community in late September and revised the fees after several developers started switching off Unity’s game-monetization features in their titles. Riccitiello has been known to be profane in his criticism of game developers who don’t think about how they will monetize their games.
In the 10 days between the first fee rollout and the revision, more than one Wall Street analyst had already started factoring the unpopular fees into estimates, despite another calling the Sept. 12 rollout a “PR disaster.”
“Following a rocky few weeks that started with Unity announcing its runtime fee, and a backtracking on certain elements of the pricing changes, it is clear that Unity has remaining work to regain its status as a trusted partner for the developer community,” Stifel analyst J. Parker Lane wrote in a Tuesday note.
Unity appointed James Whitehurst as interim CEO and said the board will start the search for a permanent CEO. Whitehurst came to Unity via International Business Machines Corp.
IBM,
-0.06%
and its acquisition of Red Hat, where he was CEO.
Lane, who has a buy rating on Unity’s stock but lowered his price target to $40 from $50, said he expects Whitehurst “to be well-suited for the interim CEO role given his past leadership experience.”
Of the 29 analysts surveyed by FactSet who cover Unity, 16 have buy-grade ratings, nine have holds and four have sell ratings, along with a $43.35 average price target.
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