Shares of Unity Software(NYSE: U) were slightly down in early trading on Thursday. But just before noon ET, the stock suddenly popped due to a big announcement regarding its pricing structure. As of 2:30 p.m. ET, Unity stock was up about 12%.
Unity waves the white flag on runtime fees
Many of Unity's customers use its software to create mobile games and monetize them. And the company has long sold its software as a subscription, charging different prices depending on whether certain thresholds were reached. But last year, then CEO John Riccitiello introduced a "runtime fee" that would charge its customers every time a game was downloaded.
It was a disastrous move that ultimately led to Unity looking for a new CEO.
Today, Unity's new CEO, Matt Bromberg, announced it's canceling the runtime fee altogether. Bromberg admitted that prices do need to come up but, "Increases needn't come in a novel and controversial new form." Considering the runtime fee was so widely criticized, investors are celebrating the move to get rid of it.
Is this a good thing?
Unity wasn't kidding when it mentioned raising prices. There are too many details to address everything here. But the bottom line is that subscription prices are going up 8% to 25%, depending on the package. It all goes into effect in Jan. 1.
Investors can logically expect Unity's revenue to go up as a result of the change. And its profit margins will hopefully improve. But there is a cloud of uncertainty. The company could possibly lose customers as a result of making so many pricing changes in a short time span. And if it loses customers, then it might not see the full financial benefit that it hoped for.
A lot might hinge on the latest version of Unity's software: Unity 6. The company expects to release it before the end of the year. And if it stands out enough from the competition, developers may subscribe in spite of any lingering frustrations over the runtime fee fiasco.
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Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Unity Software. The Motley Fool has a disclosure policy.
