Roaring Kitty's Stock Memes Can't Fix Unity Software -- Barrons.com

Dow Jones
01-03

By Tae Kim

Meme stock investors are reading into Roaring Kitty's social media posts again, this time boosting shares of Unity Software.

Unity stock was up as much as 16% Thursday, a day after Keith Gill posted on his Roaring Kitty X account a short animated clip of a comedian impersonating Rick James, who has a song called "Unity."

But stock memes can't fix struggling businesses like Unity, which sells a game development platform and ad monetization tools for mobile game developers.

Unity was one of the worst-performing technology stocks in 2024. Its shares fell 45% compared with the Nasdaq Composite's 29% gain and a 713% rise for shares of AppLovin, a mobile app ad monetization firm and Unity rival.

Unity is still suffering from the tenure of its former CEO John Riccitiello, who stepped down in late 2023. At the time, developers complained Unity had lost focus under Riccitiello, citing technology problems with the company's core game engine while the executive made billion-dollar acquisitions.

Customers revolted after Riccitiello attempted to change the pricing structure of the Unity game engine by adding a per-install cost that charged developers each time a game was installed by consumers. Unity has since retracted the plan and reverted to its traditional subscription software model. Unity has also recently implemented major layoffs, hired a new CEO, and restructured the business.

None of those moves will quickly fix the damage to customer trust. Many developers have said they plan to stop using Unity after the pricing uncertainty and lack of improvements to the game engine. The problems are showing up in the numbers. Unity's revenue was down 18% from the prior year in company's latest reported quarter with a GAAP net loss of $125 million.

Advances in generative AI are also a risk to Unity's future. The technology is "threatening to disrupt traditional platforms like Unity," Benchmark analyst Mike Hickey wrote in a note last month. The analyst said Unity is "susceptible" to being overtaken by competitors who may use AI for game development.

Unity didn't immediately respond to a request for comment on Roaring Kitty's social media post or the potential for generative AI to affect its business.

Stock memes may move a share price in the short term, but in the end, fundamentals are what's important. On that front, Unity is still in need of a fix.

Write to Tae Kim at tae.kim@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

 

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January 02, 2025 12:33 ET (17:33 GMT)

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