Why Is Unity Software (U) Stock Down 30% Today?

Unity Software (NYSE:U) stock is down 30% today after the video game developer issued weaker-than-expected forward guidance.

In this photo illustration Unity Software Inc. (U stock) logo is seen on a mobile phone and a computer screen.
Source: viewimage / Shutterstock.com

The San Francisco-based company reported a loss of 8 cents per share on revenue of $320.1 million for this year’s first quarter. While those results were broadly inline with analyst expectations, the company said that its second-quarter sales would be $290 million to $295 million, which fell well below Wall Street expectations for $360.97 million in Q2 revenue.

That big miss on the forward guidance has led to today’s plunge in U stock. Before today, Unity Software’s stock had fallen 65% on the year.

What Happened With U Stock

In addition to lowering its Q1 guidance, Unity Software also lowered its full-year revenue guidance to $1.35 billion to $1.425 billion from an earlier estimate of $1.485 billion to $1.50 billion. The company, which is best known for Unity, a licensed game engine that developers use to create video games, said that 1,083 customers each generated more than $100,000 of revenue in the first quarter compared to 837 a year earlier. Unity Software said it had $1.2 billion of cash on hand as of March 31 this year.

“We remain focused on the massive opportunity we see in front of us long-term,” said CEO John Riccitiello, in a written statement. “Short-term, we are laser-focused on accelerating growth…”

Last autumn, the company advertised Unity Gaming Services (UGS) as a suite of tools and services that can simplify developer’s ability to create, host and manage video games. Unity Software has also placed nine products into open beta and more than 54,000 game developers signed up to test the service.

Why It Matters

The steep selloff in U stock year to date, along with today’s big drop, is yet another example of how unprofitable technology stocks are getting battered in the current market.

Investors and analysts are increasingly looking beyond growth to the fundamentals of companies and punishing those that fall short of expectations. Year to date, the technology heavy Nasdaq is down 25%, putting it into a bear market.

What’s Next for Unity Software

Shareholders of U stock are in for a painful day as the share price craters on news of a weak outlook. How bad things ultimately get for Unity Software’s stock remains to be seen. But until the company can turn around its financial performance and swing to a profit, investors should expect that this stock will remain in the penalty box.

On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.


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