How Unity's New Developer Commission Policy Impacted Its Stock Prices

Unity Software Inc. (NYSE: U) stock hit an all-time high of 210 USD on 18 November 2021. However, it began a downward trajectory thereafter. By November 2022, the shares had lost 90% of their value, tumbling to 21 USD and trading in the range of 20 to 50 USD per unit ever since. What triggered this sharp decline in the stock’s value? We aim to answer these and other important questions in today’s article.

Unity Software in brief

Unity Software Inc. is a US company that provides the Unity software platform for creating and operating real-time interactive 3D content. This platform is employed to develop games, simulations, animation, and various other content for smartphones, tablets, laptops, computers, game consoles, and other devices. In addition, the corporation offers cloud services and solutions tailored for developers and game publishers. According to its website, at the time of writing on 18 September 2023, Unity Software Inc. has a presence in 45 countries worldwide with a workforce of 7,700 employees.

Why Unity Software stock dropped by 90%

As mentioned above, Unity Software Inc.’s stock saw a staggering 90% decline from November 2021 to November 2022 inclusive, plummeting from 210 USD to 21 USD. On 9 November 2021, the company released its Q3 report with financial performance exceeding expert expectations. In addition, on the same day, it announced the acquisition of Weta Digital visual effects studio for 1.63 billion USD. However, Unity Software Inc. was operating at a loss during that period, which is why the management decided to raise funds for the acquisition of Weta Digital by issuing 1.5 billion USD in convertible bonds and partly covering the cost with its own shares. It is worth noting that this move led to an increase in the corporation’s debt load.

On 17 November 2021, the company announced the pricing of the bonds, and on 19 November, when the funds were raised, the stock went into a prolonged decline. The company released its Q1 2022 results on 10 May 2022, reporting record revenues but a poor outlook for the subsequent two quarters. On the same day, it became known that there were technical glitches within the platform that affected revenues, specifically inaccuracies in targeted advertising. Unity Software Inc. revenues for Q2 and Q3 2022 fell short of the projected values, causing the stock price to hit its lowest point of 21 USD in November 2022. The situation began to change in Q4 2022 when revenue surpassed expert forecasts.

Unity Software report for Q2 2023

Unity Software Inc. released its Q2 2023 report on 2 August 2023. Revenue for April to June increased by 80% from the corresponding period of last year, reaching 533 million USD while net loss decreased by 5% to 193 million USD. The revenue stream is divided into two primary segments:

• Create Solutions – this segment comprises sales of licences and subscriptions for the Unity game engine and its related tools. Quarterly revenue for this segment rose by 17% to 193 million USD.
• Grow Solutions – this is the sale of cloud services and solutions for developers and game publishers. In Q2, this segment’s revenue skyrocketed 157%, reaching 340 million USD.

The driving force behind this surge is the elevated demand for AI tools in game development.

Financial Performance Summary for Q2 2023

Indicator	Value / Growth
Total Revenue	533 million USD (+80%)
Net Loss	193 million USD (decreased by 5%)
Create Solutions Revenue	193 million USD (+17%)
Grow Solutions Revenue	340 million USD (+157%)

How investors reacted to Unity Software’s plans to introduce developer fees

On 12 September 2023, Unity Software Inc. announced plans to introduce a developer fee – the Unity Runtime Fee. Starting from 1 January 2024, this fee will be imposed when a project achieves a specific revenue threshold in the last 12 months and exceeds a predetermined number of game installs. Thresholds for Unity Personal and Unity Plus include game revenue in the last 12 months starting from 0.2 million USD and lifetime game installs starting from 0.2 million.