Unity
From its IPO in September 2020, Unity gained 180% before peaking in November 2021. Currently, shares are down more than 80%. Roblox's performance is eerily similar as it gained 120% between its IPO in March 2021 and its peak in November 2021.
Since then, shares are down by 77%. However, both stocks have bounced around 45% from their recent lows over the last couple of trading sessions.
The original thesis for these stocks was that video game use is seeing explosive growth and monetization is in its early stages. Unity has the most popular game development engine, while Roblox is very popular among young kids. For investors who continue to believe in its long-term upside, this could be a great buying opportunity.
Let's see how Q1 earnings went for both companies:
Unity Earnings
Unity reported a loss of $0.08 per share and revenue of $320.7 million. This was in line with expectations and a 36% increase in revenue from last year.
For the next quarter, the company is forecasting revenue between $290 million and $295 million which is well below expectations of $352 million. Full-year guidance was also softer than expected at $1.41 billion vs expectations of $1.49 billion.
Unity is dealing with a slowdown in revenue growth at a time when investors are changing their focus from growth to cash flow. Unity is years away from this pivot. It's also sufficiently expensive with a market cap above $10 billion that it's unlikely that value investors would be interested at these levels.
Roblox Earnings
Roblox has a similar market cap, but its stock was bid higher despite its underwhelming Q1 earnings report. The company had 39% revenue growth, reaching $537 million which fell short of expectations of $639 million. It also had a steeper loss than expected at $0.27 per share loss vs $0.21 per share loss.
Another negative trend is that its free cash flow margins dropped to 16% from above 35% a year ago. This is due to the company increasing its spending as it focuses on growth. However, shares did move up as many analysts believe shares are not attractively valued and that the company should realize another $1 billion in ad revenue over the next year.
