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Video-game software specialist Unity Software (NYSE:U) stock contends in a challenging business niche. The company is known for helping developers monetize their games.
This might sound like it ought to be highly lucrative, but investors will likely uncover some problems with Unity Software’s financial data when conducting their due diligence.
Unity Software is sometimes pegged as a metaverse-software company. It’s possible that someday, metaverse stocks will provide strong returns for their investors.
After a bruising 2022, however, Unity Software’s shareholders have a lot of catching up to do. Whether you’re in it for mobile-gaming market exposure or for the metaverse angle, it’s wise to exercise caution as Unity Software’s road to success looks long and bumpy.
What’s Happening with U Stock?
Many technology stocks peaked in late 2021 and then declined. However, the fall-off in U stock has been particularly dramatic. Alarmingly, Unity Software shares traded at nearly $200 in November of 2021 but are now valued at around $30.
Should investors anticipate a turnaround this year? BTIG analyst Clark Lampen seems pessimistic, as he downgraded Unity Software shares from “buy” to “neutral” not long ago. Moreover, according to TheFly, Clark envisions the “potential for pressure on the mobile gaming space to last another 12-24 months.”
Are investors prepared to wait that long? The near-term outlook seems grim, as “most recent developer discussions suggest revenue growth could lag pre-COVID rates for another 12-24 months,” and Clark sees “an extended gaming mobile industry recovery,” TheFly reports.
Unity Software’s Financials Fell Short
The precipitous drop in U stock might seem overdone. Yet, there may be further declines ahead as Unity Software’s fiscal stats are worrisome.
Unity Software finalized its $4.4 billion acquisition of app-development business platform IronSource in November of last year. That’s a hefty price to pay, and informed investors should wonder whether Unity Software should be spending so much money.
During the company’s most recently reported quarter, Unity Software reported a net earnings loss of 84 cents per share. That’s much worse than the net loss of 41 cents per share from the year-ago quarter. Also, it fell short of Wall Street’s consensus estimate of a net loss of 15 cents per share.
Additionally, Unity Software’s third-quarter 2022 revenue of $322.9 million missed analysts’ forecast of $326.1 million. Unity Software CFO Luis Visoso assured that the company “carefully managed costs” in 2022, but the pricey IronSource acquisition may cast doubt upon that claim.
What You Can Do Now
Maybe you’re thinking about investing in Unity Software because you anticipate rapid growth in the metaverse. Or, perhaps you expect the mobile gaming sector to provide robust returns.
Before you jump into the trade, however, be sure to check Unity Software’s financials and take note of Lampen’s warnings. Profitability may elude Unity Software for months or even years. Therefore, U stock gets a “D” rating as it’s wise to continue monitoring Unity Software but hold off on any hasty investments.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.