Unity Software Inc.’s shares fell Wednesday after the app-monetization and game-engine company introduced new fees based on how often a developer’s game is downloaded.
Unity
U,
shares dropped as much as 8% to an intraday low of $35.83 in Wednesday trading following a Tuesday blog post, in which Unity said it was introducing “a Unity Runtime Fee” based upon “each time a qualifying game is downloaded” by a user.
“We chose this because each time a game is downloaded, the Unity Runtime is also installed,” the company said. “Also we believe that an initial install-based fee allows creators to keep the ongoing financial gains from player engagement, unlike a revenue share.”
Soon after the fees were announced, gaming media outlets like Game World Observer, Game Informer, and Rock Paper Shotgun. started following the negative fallout.
Oppenheimer analyst Martin Yang, who has a perform rating on Unity, said that while the fee move helped convert free and lower-tier Unity subscribers into paying subscribers, it may also push them toward other game engines like Epic Games Inc.’s Unreal Engine.
“While Unity’s pricing announcement resulted in a PR disaster for the company yesterday, we doubt it will lead to many developers leaving Unity for other engines,” Yang said.
Wells Fargo analyst Brian Fitzgerald, who set a buy rating and a $54 price target, said in a note following the post that while developers “voice outrage online,” Unity’s price and value “has long favored developers.”
Unity Runtime matters, the analyst noted, because it is the code that allows “Made with Unity” games to work at scale. Fitzgerald added that Unity’s effective “take rate” still remains well below Unreal Engine’s 5% royalty.
Of the 28 analysts who cover Unity, 18 set a buy-grade rating, eight set hold ratings, and two set sell ratings, with an average price target of $46.67.
Unity shares are up 30% year to date, compared with a 16% rise on the S&P 500 index
SPX,
and a 32% gain on the tech-heavy Nasdaq Composite
COMP.
Back in August, Unity raised its forecast for the year, following better-than-expected results.
