NEW YORK - Unity Software Inc. (NYSE: U) shares dropped 3.8% after the company reported a larger-than-expected loss for the first quarter and provided revenue guidance for the second quarter and full year that fell short of analyst expectations.
The company's first-quarter adjusted loss per share was -$0.75, significantly missing the analyst estimate of $0.17. Revenue for the quarter was $460 million, surpassing the consensus estimate of $433.36 million, but still represented an 8% decline from the same period last year.
The company's strategic portfolio revenue, however, showed a 2% increase year-over-year (YoY) to $426 million, which is above the guidance range of $415 to $420 million. The Create Solutions segment within this portfolio saw a notable 17% YoY growth, primarily driven by a rise in subscriptions and strategic partnerships.
Despite these gains, the overall decline in revenue was attributed to the company's portfolio choices, including a 59% YoY plummet to $34 million in revenue from non-strategic businesses due to a portfolio reset.
Grow revenue was reported at $294 million, down 4% YoY.
"While Create revenue was in line with our expectations and management reiterated FY24 guidance, Grow revenue continues to underwhelm," Wolfe Research analysts said in a note.
"We believe this raises concerns around competitive pressures impacting U's ability to meet its revenue outlook (which in our opinion requires a recovery in the Grow business in 2H), and its valuation as Create's contribution to adjusted EBITDA (and growth outlook) remains uncertain."
"As such, we remain on the sidelines until we can see better signs of growth and profitability, which we see materializing in 2025 as runtime-fees start to positively impact numbers. Reiterate Peer Perform."
Unity's GAAP net loss for the quarter stood at $291 million, which included significant restructuring costs. On an adjusted basis, EBITDA was $79 million, a $50 million improvement YoY, credited to portfolio and cost actions executed by the company.
Looking ahead, Unity has set its second-quarter strategic revenue guidance at $420 to $425 million, indicating a YoY decrease of 6% to 7%.
This is below the analyst consensus of $441.2 million. For the full year, the company reaffirmed its strategic revenue guidance of $1.76 to $1.8 billion, which would represent a 2% to 4% YoY increase but still falls short of the consensus of $1.81 billion.
Unity's leadership changes were also highlighted in the press release, with the announcement that Matt Bromberg will take over as Chief Executive Officer and President starting May 15. The company expressed confidence in Bromberg's extensive experience in gaming to lead Unity's next phase of growth.
The stock's decline reflects investor concerns over the company's earnings miss and cautious outlook, as the market reacts to the latest financial figures and forward guidance. Unity's strategic moves and cost efficiency measures, while showing some positive results, have yet to fully convince investors of their long-term profitability.
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