Unity Software’s Q4 Performance: Mixed Earnings, Revenue Surges, and Strategic Shifts

In the fourth quarter earnings report for Unity Software, there’s a notable contrast between the earnings per share (EPS) and revenue figures. The EPS stands at ($0.66), falling short of the estimated $0.22. However, on the revenue front, Unity outperformed expectations, reporting $609 million against an estimated $551.57 million.

Looking ahead, Unity’s guidance for the first quarter of 2024 reveals a revenue projection of $415-420 million, which is below the estimated $536.1 million. The full-year revenue forecast for 2024 is also conservative, ranging from $1.76 to $1.8 billion, notably lower than the estimated $2.32 billion.

One key transaction impacting the financials is the mutual termination of the service agreement between Unity and Weta FX. This move resulted in a perpetual license agreement for Weta FX’s internal use of Unity’s Weta tools, contributing a substantial $99 million in incremental revenue.

On a pro-forma basis, adjusting for the Weta FX transaction, Unity’s revenue would have been $510 million, indicating a slight year-over-year decline of -2%.

In terms of strategic focus, Unity is honing in on guiding revenue for its Strategic Portfolio exclusively. The expectation is that non-strategic portfolio revenue will not be significant for the year and will be reported separately.

The CEO’s commentary underscores an anticipation of another year characterized by high engagement from gamers and the launch of new games. The company is directing its attention to tracking performance within its Strategic Portfolio.

Analyst Revisions & Ratings for $U (Unity Software):

1. Piper Sandler: Neutral (Upgraded), PT $30 (was $35)
2. BofA: Buy, PT $45 (was $55)
3. Barclays: PT lowered to $28 (from $30)
4. Stifel: PT reduced to $32 (from $35)
5. Needham: PT cut to $31 (from $40)
6. Wedbush: PT adjusted to $33.5 (from $50)
7. Jefferies: PT lowered to $30 (from $35)

Median PT: Now $31 (Previously $35)
Highest PT: Now $45 (Previously $55)
Lowest PT: Now $28 (Previously $30)