Unity (U) Stock Trades Up, Here Is Why

Unity (U) Stock Trades Up, Here Is Why

What Happened:

Shares of game engine maker Unity (NYSE:U) jumped 11.6% in the afternoon session after the company announced in a blog post that it is canceling the controversial Runtime Fee for game developers, effective immediately, following consultation with its partners. The company further clarified that the change will not affect non-gaming industry customers. Furthermore, Unity will revert to its existing seat-based subscription model, which will apply to all gaming customers.

Additionally, Unity introduced price increases of 8% (annual subscription) for its Pro tier and 25% for its Enterprise tier. Lastly, it doubled the revenue ceiling for users on the Free tier (Unity Personal) to $200,000, which means developers earning up to $200,000 per year can use the plan at no cost.

The market's reaction indicates a more receptive stance relative to the prior update, suggesting that its core audience (mostly gaming studios and developers) appreciates the rollback of the Runtime Fee and likely views the new pricing model as more transparent.

Following the change, Wall Street analysts are likely to take a more positive outlook, as the updates offer clearer guidance for projecting how Unity's business will evolve in the coming quarters.

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What is the market telling us:

Unity’s shares are very volatile and over the last year have had 34 moves greater than 5%. But moves this big are very rare even for Unity and that is indicating to us that this news had a significant impact on the market’s perception of the business.

The previous big move we wrote about was 6 days ago, when the company dropped 6.4% as market volatility increased (Nasdaq down 2.5%, S&P 500 down 1.5%) following the underwhelming jobs report, which raised more questions about the health of the economy.

The Bureau of Labor Statistics reported that non-farm Payrolls for the month of August 2024 revealed that the US economy added 142,000 jobs. While the growth represented a significant improvement from the previous month (+89k additions), it fell below the 161,000 consensus forecast. In addition, the unemployment rate clocked in at 4.2%, roughly in line with expectations.

Following the report, the consensus expectation continued to point to a higher probability of a 25 basis points (0.25%) rate cut during the September 2024 Fed policy meeting.

Overall, the report offered limited clarity on how the new data might influence the Fed's policy decisions in the coming months, as it presented arguments that could support both bullish and bearish perspectives.

Unity is down 50.9% since the beginning of the year, and at $19.06 per share it is trading 55.4% below its 52-week high of $42.73 from December 2023. Investors who bought $1,000 worth of Unity’s shares at the IPO in September 2020 would now be looking at an investment worth $278.86.

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