Don't Buy Unity Software Stock Until It Stops Doing This 1 Thing

Unity Software's share count has risen roughly 62% since its 2020 IPO, a dilution driven by a stock-funded acquisition and heavy stock-based compensation (over 20% of revenue last year) that the article blames for a large portion of the stock's poor returns—shares trade more than 30% below the debut price and about 80% off the 2021 high. Operationally Unity remains a leading game-development platform but has seen revenue decline since early 2024, posted net losses of $434 million over the past year, and suffered customer backlash over a proposed Runtime Fee that was later reversed. The recommendation: avoid the stock until dilution stops and the company demonstrates sustained profitability, lower stock-based pay and ideally share repurchases, even though the broader gaming market opportunity is substantial.

Analysis

Unity Software's outstanding share count has risen about 62% since its 2020 IPO, a level of dilution the article identifies as a primary driver of the stock's poor return profile; shares trade more than 30% below the debut price and roughly 80% below the 2021 high. That dilution is attributed to a stock-funded acquisition in late 2022 and heavy stock-based compensation, which the article notes exceeded 20% of revenue over the past year. Rising share count mechanically depresses per‑share revenue and earnings, amplifying negative investor returns despite any operational strengths.

Operationally Unity remains a leading game-development platform in a large addressable market (researchers cited a potential $600 billion gaming market by 2030), but business momentum has weakened: revenue has declined since early 2024 and the company reported net losses of $434 million over the past year. Management missteps intensified investor scrutiny when a proposed Runtime Fee drew customer backlash and was later reversed, illustrating execution and governance risks. Reverting to subscription billing mitigates immediate PR damage but does not resolve structural capital-allocation concerns.

The article argues that unless Unity stops increasing its share count—via sustained profitability, materially lower stock-based compensation, and ideally share repurchases—the stock is unattractive; current metrics suggest that per-share recovery will be difficult and potentially prolonged. High stock-based pay (>20% of revenue) and the recent operating losses create clear milestones investors should require before adding exposure.

Key Decisions for Investors

• Avoid initiating new positions in Unity until the company demonstrates sustained profitability, a clear reduction in stock-based compensation as a percentage of revenue, and halts share-count growth.
• Existing shareholders should consider trimming exposure or implementing hedges given the 62% post-IPO share increase, the $434 million annual net loss, and execution risks exemplified by the Runtime Fee reversal.
• Monitor specific catalysts closely: sequential revenue stabilization or growth, quarterly disclosure of stock-based compensation (% of revenue), formal buyback or capital-return announcements, and customer retention metrics after the fee reversal.