Unity Software Inc.'s (U) announcement that it will lay off approximately 25% of its workforce, or 1,800 jobs, is a "necessary reset," according to analysts on Tuesday.
Unity's shares closed over 3% higher on Monday, while they are down just over 1% premarket Tuesday.
Jefferies analysts said the workforce reduction is painful but necessary, with interim CEO Jim Whitehurst taking "the right approach to hit reset and restore the business back to health."
"A RIF of 25% is at the higher end of job reductions that we've seen," wrote analysts. "While painful, we believe this is the right approach to align the company with the reality of the demand environment."
Analysts added that the move will help Unity improve its profitability in the long term. They also stated that they think Whitehurst is already having a positive impact on the business and will help rejuvenate the company back to health, "even though it may get sicker before it gets better."
Elsewhere, JMP Securities analysts said they estimate Unity cost savings could be worth nearly $400 million in annualized operating expenses when taking recent RIFs and the disclosed or implied cost savings into account.
"We believe recent software RIFs were more sales force focused, which likely depresses the average below, compared to engineers who were let go," said analysts.