I expect Unity's stock price will continue to drop for a while. It's my opinion that the adjustments that Unity made (layoffs and the engine license changed) were not just about "pumping the share price". Unity's financials were simply mid to long-term unsustainable - they were spending much more than they were making.
Unity is probably overvalued, and if its plans to reshape itself into a viable long-term business, it'll probably have to eat a bunch of share price drops.
Taking a quick peek at the Q4 shareholder letter, it doesn't really look like any of their belt tightening has really taken hold yet. 2023 Q4 has broadly similar operating expenses (R&D, S&M and G&A) as 2022 Q4. 2023 Q4 revenue barely up when you exclude the one time WETA release. Overall, Unity is still very much in the red.
Cutting expenditures means falling ever further behind Unreal Engine in the long term. Fundamentally I don't think it's a viable business as such, there are too many competitors who don't need to turn a profit solely on their game engine product.
I really hope they get acquired sooner rather than later, before they pivot to a stripped-down mobile-only engine or something.
From the outside it looks like Unity lacks focus and stamina more than anything else, lots of (what could be groundbreaking) projects started, but then semi-abandondend half way through with the key people behind those projects leaving the company.
And TBH, the 'chasing AAA' strategy was one of those things. IMHO Unity would actually be better off if it did focus on mobile. That's where the money is, where they are established, and where they don't have much competition.
That's based on the assumption that every employee contributed to improving the game engine. They went from 2700 to 7700 employees during the pandemic. They could fire the bottom half of those people and still be way ahead where they were a few years ago.
As a hobby game dev using Unity, there are plenty of issues with it. But I doubt hiring more people and throwing more money on it will solve them at this stage.
To be fair Unity had/has a bunch of other businesses unrelated or marginally related to the engine itself. They went on a spending spree during 2020 and 21 buying random companies left and right.
Seems like they are mainly focusing on cutting that.
I had to check whether they mean the same Unity I know. I could've sworn they're in the game engine business. But maybe this confusion is why the downward trend started in the first place ;)
Is there any possible redemption for a publicly traded company that is on their back foot like this?
Seems like this would have been a stellar business without the hassle of going public. How did they fuck this up? All they had to do was keep customers happy and collect money.
> Software developer Niantic released Pokémon Go, which was built using Unity engine, in 2016.[26] Following the success of Pokémon Go, Unity Technologies held several rounds of funding that increased the company's valuation: In July 2016, a $181 million round of funding valued the company at approximately $1.5 billion;[26] in May 2017, the company raised $400 million that valued the company at $2.8 billion;[27] and in 2018 Unity's CEO confirmed a $145 million round that valued the company at approximately $3 billion
Seems like investors wanted an exit, so public they went. I could be wrong. Maybe someone can provide better insight if I'm wrong or this isn't the complete picture.
I would love to know what sort of pitch they made to bring in that amount of capital. There seems to have been no business plan whatsoever besides enshittify to the max and alienate customers with ham-fisted retroactive cash grabs.
Video Games are one of the most potent attractions for peoples attention. In 2008 the whole industry was worth $12B. In 2010 it grew to $25B. It would have been easy to sell continued growth in 2016 because the industry actually did continue to grow to no one's surprise. $191B in 2021. Investing in the industry at the time would have been smart.
Unity sells shovels in a gold rush. In 2016 Unity was known for being easier than the competition while having fantastic multiplatform/mobile support. They were positioned to take a tax on games sold on every major platform. It's almost impressive how badly they ruined such a winning hand.
Among Us, Pokemon Go, Beat Saber, Genshin Impact, Hearthstone, Rust were all made in Unity.
They IPOed in 2020 at a valuation of 13.7B. Any investors in those rounds made fantastic profits. Dress it up, talk about revenue growth, dump it on the public markets and make it someone else's problem: the venture capital recipe.
$3B in 2018 seems quite modest for the amount of hype and mind-share/market-share they had from early 2010s to 2021. Since 2020, there are (were) probably a hundred companies valued at over $1B with less market fit, less product and less revenue in comparison. You have to remember pre 2022, it was all about growth. The economics and business dynamics of startups completely shifted with rates at 5% vs when they were sub-1%.
Only because they are issuing massive amounts of stock (IIRC ~15% per year) to pay their employees and not doing any buybacks. How sustainable is that?
> It's growing at a very healthy rate
The problem is that it’s not. YoY growth they reported yesterday was -2% and they are also guiding for negative growth next year.
Can you explain the "issuing stock to pay people"? 15% per year sounds quite a bit to me .. is this the norm in Silicon Valley? I presume this in the 10K?
A good portion of compensation is in stock. There is nothing wrong with it per se. It shows up on the income statement as an expense - all good. But then when people quote "operating cashflow" the company has added back that expense because it wasn't in cash. So the quoted operating cashflow (which in theory should be "real") becomes more fake from an economic viewpoint.
It's not bad, you just have to be aware of it. It's in the k - right there in the income statement (the opex lines will all have some % which is equity) and cashflow statement (the operating cashflow calc explicitly has a line for it).
I’m not sure going public was the main issue. The barely thought out acquisitions and massive over hiring after 2020 were. If they were more conservative they’d probably already be profitable
I was just reading about the Weta digital acquisition for something like $1.6B. A year later they decided to give up on most of that and laid off most of the technical talent. After which Peter Jackson hired them back for his new digital effects company. So he basically got a billion dollars to take a break for a year.
On the bright side for Unity almost all of that acquisition was financed using convertible notes from their VC investors which are almost worthless (I think > $300 share price) at 0%(!) interest. So their balance sheet isn’t that bad as a cursory look at it might imply.
Well maybe don't drive off existing and future customers by pulling rug from underneath their feet one day, then back track and promise it will not happen again.
Imagine a bank suddenly told all customers 30% of their saving will be taken, then backtrack. Only an insane/ignorant person will stay with them.
Only thing that I can think of is public ousting and crucifixion of leadership, followed by some strong legal protection of current engine's fees for X years into the future. To build the trust back.
Yes, Apple could bail them out. They might need to because, judging by recent WWDCs, they’ve already placed bets on Unity as the game engine of choice for Apple Vision Pro.
After 20 years of thinking "Apple is taking gaming seriously this time!" every 3 years, then getting __excruciatingly__ burned, I've given up. They'll build it before they buy it.
Based on how they've backed off SpriteKit and SceneKit, I really don't think they will try to build a game engine. Bringing on the big game developers requires a cross-platform engine. Like Unity, one that can target Nintendo Switch, Xbox, Playstation, etc. Any money they pour into an effort like that would cannibalize sales on their own devices.
Dunno, maybe you're right. I agree the technology choice is very bizarre, but have you noticed the emphasis on Unity in the last two WWDCs? It's clearly the game engine currently "blessed" by Apple.
I think there's a confluence of factors driving this. Foremost, they need a way for developers to make games, especially in the AR/VR space. SpriteKit and SceneKit have floundered, and RealityKit is not a complete solution to make games, let alone cross-platform games. They can't show any favor to Unreal Engine, even though it's superior, because of their fight with Epic. I wish they would invest more in something like Godot, but Unity has more marketshare (for now).
C# is a great language, and Apple is pragmatic enough to realize the cross-platform potential is much greater than Swift's. From what I've seen, Swift has little traction as a cross-platform tool compared to Mono. Lattner's departure took some wind out of the Swift sails, too.
I think you're taking the Vision Pro more serious than Apple tbh. I doubt that Apple is interested in whether the Vision Pro takes off as a gaming device, or games in general.
I assume it's because MBA folk think layoffs and gouging existing customers with price surges (at least those who "can't easily leave") is a great way to create profits, and MBA folk are the ones the determine stock prices
I don't think layoffs are a factor after their caahgrap monetization overhaul last fall.
Sure, they've since rolled it back, but nobody in their right mind would ever touch that engine again
In 2014 until 20218 I would have started any new game dev project in Unity without a second thought. Somewhere along the way Epic really invested in making Unreal better while the Unity engine became a meme of half-finished new initiatives. It’s still a good engine but I think mostly because it’s riding the very strong core built by its original teams. I’m curious how many of them are still at the company?
Unity is probably overvalued, and if its plans to reshape itself into a viable long-term business, it'll probably have to eat a bunch of share price drops.
Taking a quick peek at the Q4 shareholder letter, it doesn't really look like any of their belt tightening has really taken hold yet. 2023 Q4 has broadly similar operating expenses (R&D, S&M and G&A) as 2022 Q4. 2023 Q4 revenue barely up when you exclude the one time WETA release. Overall, Unity is still very much in the red.
2024 will be interesting to see.