Unity (U) stock tumbles 19% on quarterly loss and disappointing guidance

February 26, 2024 4:26 PM EST

Shares of Unity Technologies (NYSE: U) plunged over 17% in premarket trading Tuesday after the company reported much worse-than-anticipated FQ4 earnings. In addition, the company provided disappointing guidance as restructuring efforts cut deeper into profitability than investors had expected.

The video game software developer announced a loss per share of $0.66, notably worse than the earnings per share (EPS) of $0.22 that analysts expected. Revenue came in at $609 million, surpassing the anticipated projection of $551.57 million.

For the first quarter of 2024, Unity Software projects revenues to be in the range of $415 to $420 million, a far cry from the $536.1 million estimated by analysts.

Further, the company anticipates its adjusted EBITDA to be between $45 and $50 million.

Looking ahead to the full year of 2024, the company anticipates revenue to fall between $1.76 billion and $1.8 billion, also well below the consensus estimates of $2.32 billion.

During the fourth quarter, Unity and the visual effects company Wētā FX decided to end their service agreement and instead opted for a perpetual license arrangement, allowing Wētā FX to continuously use Unity's Wētā tools internally.

This change contributed an additional $99 million to U’s revenue, factoring in the recognition of deferred revenue from Wētā FX. Excluding this impact, Unity's revenue would have stood at $510 million, marking a 2% decline from the previous year on a pro-forma basis, the company said.

"Going forward, we will guide revenue only for our Strategic Portfolio, as we expect that the non-Strategic portfolio will not be material for the year,” Unity said in a statement.

“We will report any non-strategic revenue separately so that you can track our underlying performance. In 2024, we expect another year of high engagement from gamers and new game launches,” it added.

In their note covering the report, Wolfe Research analysts said they maintain their confidence in Unity's gaming engine as the frontrunner in the market.

However, due to concerns over overall EBITDA and revenue growth in U's Grow suite, the broker said it prefers to "remain on the sidelines until we can see better signs of both growth and profitability, which we see materializing in 2025 as runtime-fees start to have a positive impact to numbers."

Wolfe reiterated a Peer Perform rating.

By Vahid Karaahmetovic

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