Why Unity software stock jumped 9% on Monday

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What happened

3D software company stock Unit Software (NYSE:U) surged in Monday’s trading, gaining 9.2% as of 3:25 p.m. ET.

There is no obvious news pushing the stock higher today – but there has been some news last week.

Image source: Getty Images.

So what

Specifically, in a midday note on Friday, the investment bank Citigroup have suggested that the eventual size of the metaverse could be between $8 trillion and $13 trillion. That estimate didn’t do much for Unity on Friday when the stock slipped a small fraction of a percent. Now, however, investors seem to be seizing the opportunity for Unity to capitalize on the sale of 3D software for use in building the Metaverse.

According to Citi, opportunities in “gaming, commerce, art, media, advertising, smart manufacturing, healthcare, virtual communities and social collaboration” could all ultimately attract between one billion and five billion users in a future metaverse, either via dedicated virtual reality devices or simply via smartphones.

Now what

In the meantime, Unity Software could remain a tricky stock to own. On the one hand, the company is growing its revenue well – about twice as much in the past two years. Additionally, free cash flow is expected to turn positive this year (at least according to analysts surveyed by S&P Global Market Intelligence).

On the other hand, it could be a very long before Unity started generating positive earnings, calculated using generally accepted accounting principles (GAAP). On average, analysts don’t expect GAAP earnings to turn positive for Unity until 2027 at the earliest.

Until Unity reaches that happy point where it generates consistent and reliable earnings, investors can expect continued volatility in Unity Software stock.

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Citigroup is an advertising partner of The Ascent, a Motley Fool company. Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns and endorses Unity Software Inc. The Motley Fool has a Disclosure Policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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