Unity Software Tanks 48% YTD: How Should You Play the Stock?

Unity Software Tanks 48% YTD: How Should You Play the Stock?

Benzinga
October 8, 2024

Unity Software (NYSE: U) has been in particularly choppy waters so far in 2024 as the stock has plummeted 48.2% compared with the Zacks Computer and Technology sector's 23.4% return, leaving investors wondering whether this represents a buying opportunity or a sign of deeper troubles ahead.

Unity, known for its widely-used game development engine, has been grappling with challenges in its core business segments. The company's recent financial performance and guidance revisions have sparked concern among analysts and shareholders alike.

In its latest quarterly report, Unity delivered mixed results. While the company showed improvements in free cash flow, generating $80 million in the second quarter — a 137% increase from the previous year — revenue growth in key segments has been sluggish. The Grow Solutions segment, which encompasses Unity's advertising and monetization business, experienced a 9% year-over-year decline, reaching $296 million. This downturn in the advertising side of the business has been a significant factor in Unity's stock performance, as it represents a substantial portion of the company's revenues.

Year-to-Date Performance

Image Source: Zacks Investment Research

Unity Rebuilds Ad Tech Amid Mobile Gaming Supremacy

Despite these challenges, Unity maintains a dominant position in the mobile gaming market. The company powers 70% of the top mobile games globally. In 2023, applications built with Unity averaged 3.7 billion downloads per month. On the advertising front, Unity delivers over 65 billion impressions monthly, reaching more than 1.5 billion individual gamers.

To address the headwinds in its advertising business, Unity has embarked on a comprehensive rebuild of its machine learning stack and data infrastructure. The company aims to create ...

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