"Roaring Kitty" Shakes Up Market; Focus on Unity Software (U.US)

"Meme stock" investors once again analyzed the social media updates of "Roaring Kitty" (Keith Gill) to focus on Unity Software (U.US) on Thursday. After Gill posted a short animated clip of a comedian impersonating Rick James, who has a song called "Unity," Unity's stock price rose 16% on Wednesday.

While Roaring Kitty's short-lived boost to Unity's stock price does not solve Unity's core problems, the company mainly sells game development platforms and provides advertising monetization tools for mobile game developers. In 2024, Unity is one of the worst-performing tech stocks, down 45%, far behind the 29% rise of the Nasdaq Composite Index, and far behind its competitor AppLovin (APP.US) with a 713% rise.

Unity's problems can be traced back to the tenure of former CEO John Riccitiello, who left at the end of 2023. Under Riccitiello, Unity was accused of losing direction, plagued by core game engine technology issues, and making billions of dollars in acquisitions. These issues led to high customer dissatisfaction, especially when Riccitiello tried to change the pricing structure of the game engine, planning to charge per game installation, which led to a peak in developer protests. Although Unity later canceled the plan and returned to its traditional subscription software model, customer trust had already been damaged.

Unity also faces multiple challenges, including business restructuring, layoffs, and a new CEO, but these measures are unlikely to repair customer relationships in the short term. Many developers have already indicated plans to abandon Unity after experiencing uncertainty in pricing structures and delays in game engine improvements.

Unity's performance struggles are also reflected in its financial results. According to its latest quarterly report, Unity's revenue declined 18% year-on-year, while it recorded a GAAP net loss of $125 million. The rapid development of generative AI also poses a threat to Unity's future. In a recent report, Benchmark analyst Mike Hickey noted that generative AI "could disrupt traditional platforms like Unity" and believes Unity may be surpassed by competitors using AI for game development.