Altria’s surprise drop was small compared to Tuesday afternoon


JThe stock market finally managed to avoid another big day of decline on Tuesday, with many investors hoping for signs that the economy might not be hit as hard as some feared. the Dow Jones Industrial Average (DJINDICES: ^DJI) day has fallen again, but at the same time the S&P500 (SNP INDEX: ^GSPC) and the Nasdaq Compound (NASDAQ INDEX: ^IXIC) were able to regain their footing and post modest gains to recover some lost ground.

Hint

Daily Percent Change (Drop)

Daily point change

Dow

(0.26%)

(85)

S&P500

+0.25%

+10

Nasdaq

+0.98%

+114

Data source: Yahoo! Finance.

Yet there were still pockets of weakness in the markets. A surprising source of decline came from the tobacco giant Altria Group (NYSE: MO), which until now had been a relatively safe defensive play that had held up well. But its losses on the day were relatively small compared to the after-hours decline that Unit software (NYSE:U) suffered. Below, we’ll take a look at the two companies and what happened to make shareholders nervous about their respective futures.

Image source: Getty Images.

Could Altria lose its closest partner?

Altria shares fell nearly 7% on Tuesday. Cigarette maker Marlboro has been one of the few stocks to gain traction so far in 2022, but news about the international business it built nearly 15 years ago has created new concerns for the American tobacco giant.

Philip Morris International (NYSE:PM) was part of Altria, and even after it became an independent company, the two companies had close ties. For example, the two had reached an agreement regarding the IQOS heated tobacco alternative to combustible cigarettes, with Altria having potential distribution rights in the US market for the product developed by Philip Morris.

However, Philip Morris is reportedly considering making a takeover bid for the smokeless tobacco maker Swedish game (OTC: SWMAF), with some putting a $16 billion value on a merger. This would potentially open the door to direct competition between Philip Morris and Altria, as Swedish Match’s pouch-based smokeless tobacco comes up against Altria’s brands like Copenhagen in the US market. Additionally, some believe that Altria’s IQOS distribution deal with Philip Morris could end if the Swedish Match acquisition goes through.

Altria’s declining share price pushed its already impressive dividend yield to almost 7%. It’s a big win, but a changing competitive image against Philip Morris International could put further pressure on Altria’s business.

Unity is collapsing

After the market closed, Unity Software saw its stock plummet 33%. The interactive content platform provider is still enjoying substantial growth, but like many of its peers, Unity has been unable to meet the high demands of its investors.

The first-quarter results are at the upper end of its previous guidance range. Revenue of $320 million increased 36% year over year. Its Create segment saw the strongest growth, with segment sales up 65%, but other product suites also saw double-digit percentage gains over prior year levels. Unity still lost money for the period, but adjusted losses of $0.08 per share were slightly lower than the year-ago figures. Although the dollar-based net expansion rate fell 5 percentage points to 135%, Unity got a nice influx of customers generating at least $100,000 in revenue.

However, Unity’s forecast for the full year was not very encouraging. The company expects to post another adjusted operating loss in 2022, and it cut its sales projections to forecast revenue of $1.35 billion to $1.425 billion. That range was down $75 million to $135 million from the previous forecast, and that would represent growth of just 22% to 28%. Second-quarter sales in particular could see year-over-year gains fall to just 6% to 8%.

Investors are in no mood for slower growth. Until Unity can demonstrate its ability to get back on track, shareholders may be slow to regain confidence in the Metaverse game.

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Dan Caplinger has no position in the stocks mentioned. The Motley Fool holds positions and endorses Unity Software Inc. The Motley Fool has a Disclosure Policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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