Insights

Why Unity Software Stock Was Down This Week

What happened

Week to date, shares of Unity Software (NYSE: U) are down 7% as of 11:18 a.m. ET on Friday, according to data provided by S&P Global Market Intelligence. The fall seemed mostly correlated with the drop across the market indexes this week. Fears mounted of a pending recession after the Federal Reserve decided to raise the federal funds rate to stem the upward pressure in inflation. 

As for Unity, one analyst downgraded the stock this week to a sell rating, which contributed to the stock’s drop. However, the negative sentiment around the shares might be a great buying opportunity for long-term-minded investors.

So what

Unity stock dropped sharply following the first-quarter earnings report. Revenue increased by 36% year over year, consistent with management’s long-term target of 30% annualized growth. But second-quarter guidance called for revenue to increase between 6% and 8% over the year-ago quarter, and that sent the stock crashing to new lows. Management explained during the earnings call that the problems contributing to slower growth in the near term are self-inflicted wounds that it will fix. 

That didn’t stop one analyst with Benchmark from issuing a sell rating on Unity this week. Analyst Mike Hickey believes a weak economy and slowing engagement in video games coming out of the pandemic will pressure Unity’s business. Unity makes money from subscriptions to its software engine used by leading game companies. It also provides Unity Gaming Services, which helps companies monetize and grow engagement in their games. 

Now what

The drop in the stock price is a great opportunity to buy this leading provider of real-time 3D content software on the cheap. Analysts generally make buy and sell calls based on near-term business trends, so it’s not surprising to see negative sentiment for the stock following Unity’s disappointing outlook.

But the stock has already fallen 76% year to date, so the bad news is largely baked in. Unity estimates its long-term growth opportunity at $45 billion based on existing markets where it competes and new use cases for its software beyond gaming. 

John Ballard has positions in Unity Software Inc. The Motley Fool has positions in and recommends Unity Software Inc. The Motley Fool has a disclosure policy.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

  • This field is for validation purposes and should be left unchanged.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Free Share Allocation Reward Levels

STARTER

Class
$ 2,500 Deposit & Trade
  • REWARD^
  • 1 x Marathon Oil Corporation (NYSE:MRO)

ECONOMY

Basic
$ 5,000 Deposit & Trade
  • REWARD^
  • 1 x Pfizer Inc (NASDAQ:PFE)

ECONOMY

Standard
$ 10,000 Deposit & Trade
  • REWARD^
  • 1 x Amazon.com Inc (NASDAQ:AMZN)

ECONOMY

Plus
$ 25,000 Deposit & Trade
  • REWARD^
  • 2 x Apple Inc (NASDAQ:AAPL)
POPULAR

BUSINESS

Class
$ 50,000 Deposit & Trade
  • REWARD^
  • 4 x Apple Inc (NASDAQ:AAPL)

FIRST

Class
$ 150,000 Deposit & Trade
  • REWARD CHOICES^
  • 12 x Apple Inc (NASDAQ:AAPL)
  • 2 x Tesla (NASDAQ:TSLA)
^Please refer to the Free Share Promotion Terms and Conditions for details.

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex Securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

FREE AAPL, TSLA, AMZN, PFE or MRO Share(s)
REGISTER TO BE ELIGIBLE FOR FREE SHARES
TRAVEL ACROSS THE FINANCIAL WORLD
Act Fast - Promotion Ends In
Click Here To Get Started
FREE AAPL, TSLA, AMZN, PFE or MRO Share(s)
REGISTER TO BE ELIGIBLE FOR FREE SHARES
TRAVEL ACROSS THE FINANCIAL WORLD
Act Fast - Promotion Ends In
Click Here For More Info