Unity Technologies (U  ) was down 17% higher following the company's Q4 earnings report which showed the company topping analysts' consensus expectations on the top and bottom-line but issuing worse than expected guidance. Unity is one of the leading video game engine and rendering companies with some of the most popular games being built on top of its platform.

This made it one of the hottest growth stocks last year. From its IPO in September 2020 to its peak in November 2020, the stock climbed by nearly 200%. Since then, it's down by nearly 50% and a victim of the growth stock sell-off. Therefore, the company's earnings report will become increasingly important to determine whether the optimism of last year was correct or today's pessimism will be proven correct.

Inside the Numbers

In Q4, Unity reported a loss of $0.10 per share vs expectations of a loss of $0.14. Revenue was 39% higher than last year, a deceleration from last quarter's 53% revenue growth, and topped expectations at $220.3 million vs. $204.23 million.

Next quarter, Unity is forecasting between $210 million and $220 million in revenue, which would be another deceleration to 29% growth. For the full-year, it anticipates between $950 million and $970 million in revenue. This equates to about 24% revenue growth and below its long-term goal of 30% revenue growth.

The company expects a major growth driver to be momentum in user engagement as it expects continued growth in consumption of content on its platform even after the pandemic. Like Meta (FB  ), Unity expects an impact from the privacy changes in Apple's (AAPL  )iOS which essentially makes ads less profitable.

Currently, Unity's core business is developers using its game engine to build games for mobile devices and then capturing a portion of that revenue. This business has taken a hit due to the iOS changes. If this were Unity's only growth driver, then it could spell trouble for its stock as it would have no chance to realize it's still lofty $27 billion valuation.

But, the stock has other growth drivers with larger developers increasingly using the platform and new end-markets opening up for its rendering software. So, buying the stock is a bet on those catalysts becoming big enough to move the needle and the timing of it happening. Until then, the stock could continue to underperform.

In the days after the earnings report, Unity shares have recovered these losses and is up 15% along with the stock market bounce and bounce in growth stocks. In the near-term, Unity's stock price is likely more affected by macro factors which seem to continue to pose a challenge given rising inflation and a hawkish Federal Reserve.