From their peak in late 2022, shares of video game engine developer Unity (U 2.24%) have tumbled more than 80%. The company's revenue dropped by 17% in 2024 as Unity reckoned with years of bad decisions, including the expensive acquisition of mobile ad company ironSource and the disastrous rollout and eventual cancellation of onerous fees for developers.
Unity set out to "reset" itself in early 2024. It got out of non-core businesses, laid off a sizable fraction of its workforce, and turned to mobile gaming veteran Matthew Bromberg as new CEO.
While a quick look at Unity's stock chart over the past few years doesn't paint a pretty picture, the company is starting to get back on track. For patient investors, Unity has a future that could deliver solid returns.
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Rebuilding trust with developers and revamping advertising
There are two main things that Bromberg has done as CEO so far. First, the company completely cancelled the fees announced by Bromberg's predecessor.
The Runtime Fee was originally punishing, charging developers fees for each game install. The terms were unclear, raising concerns about how free-to-play games, monetized with in-game purchases or ads, would be viable.
Unity boosted subscription prices for its Unity Pro and Unity Enterprise offerings in conjunction with canceling the Runtime Fee, and the results have been encouraging. While overall revenue is still contracting slightly, subscription revenue is growing again.
Unity is one of just two major commercial game engines that are widely used across the industry. While some developers may still not trust the company, there hasn't been an exodus of customers.
Second, Unity rebuilt its advertising business. Unity Vector is the company's new artificial intelligence (AI)-powered ads platform aimed at producing improved results for advertisers. Vector drove 15% sequential growth for the Unity Ad Network in the second quarter, a promising start.
While Unity still has work to do, the company has largely stopped the bleeding. With the stock still down big from its all-time high, Unity is worth a look for long-term investors.
