Poor Decisions Ran the 'Next Google' Into the Ground
Editor's note: Bad management can ruin your biggest winners...
As Chaikin Analytics founder Marc Chaikin explains, an irresponsible CEO can end up eroding shareholder value, no matter how promising a stock might seem.
In today's Masters Series, originally from the May 28 issue of the Chaikin PowerFeed daily e-letter, Marc details how a series of poor management decisions led to the downfall of one of the most promising tech stocks we've seen this decade...
Poor Decisions Ran the 'Next Google' Into the Ground
Four years ago, Unity Software (U) was one of the market's hottest stocks...
The tech company already dominated the video-game space. And its shift into advertising put it on a path to becoming the "next Google." (I covered Unity's rise in yesterday's essay.)
But the good times didn't last...
Unity's downfall started in May 2022. That's when the company slashed its outlook for the year ahead.
As part of that move, management disclosed major issues with one of its tools.
Its Audience Pinpointer tool matches advertisers with users. But due to the tool "ingesting bad data from a large customer," the company took a $110 million hit on its revenue.
The details are super technical. But the key takeaway was devastating...
Unity's technology had big problems. And those problems were hurting its ad business.
When the news broke, the company's stock plunged 37% in a single day.
Then, two months later, CEO John Riccitiello created another big headache...
During an interview tour, Riccitiello was promoting Unity's plan to buy another company. It should've been unremarkable – even boring.
Instead, one of the interviews became a viral sensation...
You see, Riccitiello made an offhand comment. Specifically, he was talking about developers who weren't hyperfocused on monetizing their games. He said...
They're the most beautiful and pure, brilliant people. They're also some of the biggest f***ing idiots.
Remember, this quote came from the CEO of a major corporation. And he was talking about his company's customers.
The comment didn't make the front-page headlines. But in the game-developer community, it triggered outrage.
Publicly insulting your customers is obviously bad for business.
And yet, Riccitiello was still digging a deeper hole. His next mistake would be his biggest...
In September 2023, he announced a new pricing model called Runtime Fee. The new plan would charge Unity's customers a fee every time someone installed their game.
That brought up a big problem for game developers...
The new model made it nearly impossible to predict how much their games would cost.
Once again, folks in the video-game industry went crazy. Industry website Game Developer cited the "seismic backlash" to the move and called it "an egregious act of betrayal."
Unity tried to ease the pushback with more details about the new model. But ultimately, the company canceled the plan.
It was too late, though...
Unity's stock plunged more than 80% from its November 2021 peak through September 2023. You can see the decline in the following chart...
Unity announced Riccitiello's resignation on October 9, 2023.
The gaming community cheered his downfall. In a post on social media platform X, an editor from Pocket Gamer sarcastically said...
Sad to see Riccitiello go. Unity blunders are responsible for four out of the top five all-time most-read stories on my site.
By the time Riccitiello resigned, Unity's reputation was severely damaged. And the company is still trying to rebuild its customers' trust.
It's a shame...
Unity could've kept paving its way to becoming the next Google.
By early 2021, the company had started shifting its focus to ad-related services. And as you can imagine, advertising is a much bigger market than video games.
But instead, thanks to Riccitiello's missteps, we're talking about its downfall today.
It's another example of how much leadership decisions matter.
A company can be full of promise – like Unity. And yet, things can still blow up if the top brass is out of sync with customers.
Good investing,
Marc Chaikin
Editor's note: Marc called this year's market crash 13 days before it happened... the 2020 and 2022 crashes... and the 2023 banking crisis two weeks before it unfolded. Now, he's stepping forward to sound the alarm with another urgent warning...
He's going on camera on Wednesday, June 25 to explain why it's imperative that you start raising cash before we reach a pivotal turning point in the markets. Plus, he's sharing four free recommendations to help you take advantage of this coming shift. Learn more here...
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