• U stock is down 36% on revenue miss, outlook.
  • Unity Software stock expects slowing growth ahead.
  • U share price is down 76% year-to-date.

Unity Software (U) stock has entered capitulation mode in the same way Facebook, Netflix, Upstart, Affirm, and so many other tech darlings have during the 2022 stock market collapse. Like so many other high-flying pandemic stars, Unity is seeing slowing growth destroy its share price. Revenue growth, which still clocked in at 36% YoY, only rose about 1% from the fourth quarter. 

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Unity stock dropped 36% on Wednesday to trade at just above $30 a share. This must be soul-crushing for anyone who purchased the gaming software company near its all-time high at $210 last November.

Unity Software Stock News: Revenue curve flattens

Unity has been growing revenue rapidly since it IPO'd in September 2020. Much of that growth was above 40%. Every subsequent quarter saw Unity add another $15 to $30 million of additional revenue over the preceding quarter. On Wednesday, however, management reported revenue for the first quarter of $320 million. This was just $4 million ahead of Q4 and missed analysts' already low expectations of $321 million.

Earnings likewise were unimpressive. Unity did match consensus on normalized earnings per share (EPS) of $-0.08 but missed GAAP EPS by $-0.14. The latter was $-0.60 compared with forecasts of $-0.46. 

The most worrisome part is that management revised its revenue expectations for Q2 to $290-$295 million. Wall Street consensus had this figure pegged at $360 million. Management also said full-year revenue was expected closer to $1.4 billion rather than the consensus $1.5 billion.

One silver lining was the Create Solutions segment grew revenue at a 65% clip YoY, but this was offset by slower growth in the company's other two segments.

Unity Software Stock Forecast: U breaks below trend support

With Wednesday's massive stock collapse, U shares have broken through the lower trend line that has provided support since January of this year. Unity stock had been in a decline from its $210 all-time high in November 2021, but it was able to remain within a declining price channel. Now that U stock has broken this channel, as can be seen in the 4-hour chart below, where it will head now is anyone's guess.

Wednesday's low of $30.30 seems to be acting as support for now, but there is no trust that it will hold up over the next month. The Relative Strength Index (RSI) sits at 21, way oversold, but it is best to wait for the Moving Average Convergence Divergence (MACD) indicator to turn bullish before jumping in. Right now, it looks considerably bearish.

The FXStreet hunch is that this one will remain depressed for months until inflation falls and the Federal Reserve stops raising interest rates. Of course, that may not happen until the end of the year, though traders may begin loading up once Unity breaks back above $45.

 

Unity Software 1-day chart

 


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