Unity Software Inc. ($U) is a video game development software company. They aid developers in developing, analyzing, monetizing and advertising interactive content like games. Following the earnings, $U crashed 37% in one day. Today we are going to breakdown the issue and see if it is a good buy or not.
Overview
📝 Q1 22 results
🎯 Pinpointing Pinpointer solution
🤔 Buy or not
📝 Q1 22 results
Unity released its quarterly earnings report on May 10th and unity crashed more than 37% on May 11th. While it’s down 55.16%, I think it’s mostly because of the macro factors plus Unity being traded in 30x P/S ratio.
Q1 22 was decent for Unity. As seen in the image below, Unity has beaten the revenue expectation and are up 36% YoY. They missed on DBNR by a percent. It should be considered a good quarter.
So, why was the stock down, you ask! It’s because they decreased their Q2 guidance to $290-$295 million and for full year the guidance is at $1,350 to $1,425 million which is growth of 22%-28%. This lowered guidance because of bad data ingestion in Audience Pinpointer Tool. This will cause $100 million loss in revenue. This also has caused delay in release of other services and products.
🎯 Pinpointing Pinpointer solution
Following the pinpointing of lack of accuracy in Pinpointer tool, I dug into the issue by talking to AI experts. As, Unity consumes a lot of data and data points from over 3 billion devices, depending on the model, the issue isn’t uncommon. For them to solve the issue, should take anywhere between 4-6 months, which is matches the timeline given by Unity as well as they claim Q4 won’t be affected by it. But, the real question is if it can be solved and if its accuracy can be increased. The answer is unknown until it happens.
🤔 Buy or not
Given there are many unknowns, the answer to buy or not to buy isn’t simple yes or no as well. There comes many different things that comes into play. If you have faith in Unity’s ability to solve the issue, it may be one of the best times to buy Unity. If you don’t have faith, you might want to wait for a while, Q3 at least, before you choose get invested.
I have a confidence in Unity’s ability to solve the issue and although time consuming the solution seems to be easy. So, I have been adding to my position. I have added more than 50% on Unity and it remains my single biggest holdings in my portfolio.
🔮 Future plans
My future plans doesn’t include buying more Unity as I am already around 10%, unless the opportunity is lucrative. As a dividend growth investor I want a stability in my portfolio, and with beta of 2.34 Unity will increase volatility of my portfolio.