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Here's Why Unity Software Stock Took a Breather After Earnings

By Danny Vena and Jason Hall - Feb 23, 2021 at 9:00AM

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The video game development platform has been on a breathtaking run.

When Unity Software (U -7.57%) reported earnings earlier this month, investors had high expectations. The company delivered revenue and earnings per share that both easily exceeded analysts' consensus estimates. Yet even given its strong performance, the stock tumbled 14% in the wake of its financial report.

On this clip from Motley Fool Live recorded on Feb. 8, "The Wrap" host Jason Hall and Fool.com contributor Danny Vena discuss the recent results and why the stock took a breather from its rapid ascent.

Jason Hall: Danny, you want to grab that Unity question? Take a couple of minutes to talk about Unity's earnings.

Danny Vena: I do. I just looked briefly here. What I found was that it was not a bad quarter. It looks like the revenue grew by 39% year-over-year, which is not a bad number. But that was a slowdown from the 53% revenue increase that they delivered during the previous quarter. So there was a little bit of a slowdown there.

Their net loss was about $0.10 per share, which was a much improved from a net loss of $0.79 per share in the year-ago period. The company achieved a lot of records across metrics during the quarter.

But I think there's two things. First of all, was the little bit of a slowdown in the revenue growth that we saw.

The second is the fact, if you look at what the stock has done, it's important to remember that Unity Software only went public back, I want to say in September. From the time that the stock went public in September, it grew something like 152% after the first day of trading, just between September and December. If you look at it right now, the stock is basically, let's see, it's only.

Jason Hall: It's [down] about 28%.

Danny Vena: Yeah. That means it's still up 83% year-over-year. Actually that's not even a year from the time that it debuted in September.

Jason Hall: Right. Five months.

Danny Vena: The stock's, yeah, it's taking a little bit of a breather. If you believe in the long-term viability of the company, I think investors sold off a little bit because the growth slowed down a little. But that's not a deal killer and could just backup a little bit and look at the longer-term, the stock is still up 83% in just a few months. I don't think there's an issue there.

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