Image source: Megapixl

Highlights

  • In Q1FY24, Unity Software saw an 8% revenue drop, resulting in a USD 291.48 million net loss for the quarter
  • From FY17 to FY22, the company exhibited strong financial growth, achieving a revenue CAGR of 45.27% and a gross profit CAGR of 40.45%
  • The company forecasts revenue from the strategic portfolio to range between USD 1,760 million and USD 1,800 million for the full year, up 2% to 4% year-over-year

Unity Software Inc. (Unity) (NYSE: U) offers a platform catering to content creators. This platform includes real-time three-dimensional (RT3D) development tools and services. It is designed for generating interactive experiences in two-dimensional (2D), three-dimensional (3D), virtual reality, and augmented reality across various platforms and devices. It has a market capitalization of USD 6.43 billion.

In the first quarter of FY24, the company experienced an approximate 8% decline in total revenue, primarily driven by reduced demand for its products and services. As a result of this decrease in revenue, the company reported a net loss of USD 291.48 million for the quarter.

Nevertheless, from FY17 to FY22, the company exhibited substantial financial growth. Revenue soared from USD 551 million in FY17 to USD 3,564.9 million in FY22, showcasing a compound annual growth rate (CAGR) of 45.27%. Similarly, gross profit rose from USD 433.4 million to USD 2,369.1 million during this timeframe, achieving a CAGR of 40.45%.

Source: EODHD/Others, analysis by Kalkine Group

Recent business update

On May 1, 2024, Unity announced the appointment of Matthew Bromberg as Chief Executive Officer, President, and member of the board of directors, with effect from May 15, 2024.

Company outlook

In the second quarter of FY24, the company forecasts revenue from its strategic portfolio to range between USD 420 million and USD 425 million, marking a 6% to 7% decline compared to the previous year. Adjusted EBITDA for the entire company is expected to be between USD 75 million and USD 80 million.

Looking ahead to the full year, the company reiterates its guidance with revenue from the strategic portfolio expected to be between USD 1,760 million and USD 1,800 million, representing a 2% to 4% increase year-over-year. Adjusted EBITDA for the total company is anticipated to range between USD 400 million and USD 425 million. The company aims to achieve adjusted EBITDA margins exceeding 25% by the end of 2024.

In the Create segment, revenue growth in the latter half of the year is expected to be driven by game subscriptions, ongoing expansion in various industries, and the expansion of multiplayer, LiveOps, and collaboration services.

Meanwhile, in the Grow segment, growth is anticipated to come from additional product enhancements, particularly utilizing rich data to improve models and deliver a stronger return on ad spend (ROAS) for customers.

The company projects having 478 million fully diluted shares at the end of the second quarter and expects this number to increase to 492 million by the end of the fiscal year.

Top 10 shareholders

The top 10 shareholders of Unity collectively hold approximately 46.35% of the total shares, indicating significant concentration of ownership. Among them, Silver Lake Partners and Sequoia Capital Partners Inc. hold the largest stakes in the company, with approximately 8.89% and 8.08% ownership, respectively.

Stock performance

The stock price of Unity Software has experienced a 39.01% decline over the last three months and a 46.14% decrease over the past nine months. Currently, it is nearing the lower end of its 52-week trading range, which spans from a high of USD 50.08 to a low of USD 15.23.

Note 1: Past performance is not a reliable indicator of future performance.
Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is June 26, 2024. The reference data in this report has been partly sourced from EODHD/Others.