There's been a lot of interest in Unity Software (NYSE: U) in recent years. You might understand why when you learn that the company "offers a suite of tools to create, market, and grow games and interactive experiences across multiple platforms from mobile, PC, and console, to spatial computing."
Video gaming is big business, after all. Per Grand View Research, the video game market was valued at around $217 billion in 2022 and is projected to grow by an annual average rate of 13.4% by 2030.
Unfortunately, many investors in Unity Software have been burned. Here's an example: If you'd plunked down $1,000 in Unity three years ago in 2021, you would have been down to around $130 today. That's a total loss of 87% and an average annual loss of 49%.
Those numbers really sting when you compare them to how you'd have done with a simple S&P 500 index fund. Over the same period, the S&P 500 gained 25.5% -- about 7.9% annually, on average.
What happened? Well, back in 2021, CFO Luis Visoso claimed that "we believe that we can sustain revenue growth at or above 30% per year for the long term." The company did post big double-digit revenue gains at first, but then growth slowed. The stock soared so much that it was in overvalued territory, where it was arguably more likely to fall than continue to soar.
Meanwhile, an Apple update increased privacy for users while hurting advertising revenue for game developers. These and other factors led to the stock plunging. Unity also faced tough competition from AppLovin and a backlash against fees it introduced.
The big question now is: Where will Unity Software go from here? Is it a buy? Is it likely to grow robustly?
Well, it has a new CEO and CFO and a new iteration of its software coming out later this year. There's plenty of reason to be hopeful, but investors might want to wait and see if the company can turn profitable before investing.
Should you invest $1,000 in Unity Software right now?
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Selena Maranjian has positions in Apple. The Motley Fool has positions in and recommends Apple and Unity Software. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
