Unity Stock Pops Briefly After Earnings

Mobile gaming engine Unity Software (NYSE: U) reported first-quarter earnings results on Tuesday evening, and shares briefly popped by 9% on Wednesday morning. But then the ongoing sell-off among tech stocks resumed, as investors continue to shun growth-oriented companies.

As of 12:45 p.m., the stock had given back all of those gains and was down approximately 1%.

How did Unity do in the first quarter?

Revenue in the first quarter increased 41% to $234.8 million, which was ahead of the consensus estimate of $217.1 million. That resulted in an adjusted net loss of $0.10 per share, which was also better than the $0.12 per share in adjusted losses that Wall Street analysts were modeling for.

Here’s how each business segment fared:

SegmentQ1’21 RevenueYOY Growth
Create Solutions$70.4 million51%
Operate Solutions$146.6 million40%
Strategic Partnerships$17.8 million12%
Total$234.8 million41%
Data source: SEC filings

“Our first quarter results are reflective of the powerful transition from linear 2D to real-time 3D, which is one of the most important changes in how people interact with technology,” CEO John Riccitiello said in a statement. “We believe that real-time 3D will continue to grow at an accelerated pace and achieve massive scale.”

Unity reported a dollar-based net expansion rate of 140%, up from 133% in the year-ago quarter. That metric measures spending from existing customers and shows that Unity is successfully upselling and expanding those relationships. There are now 837 customers that each generated over $100,000 in trailing-12-month (TTM) revenue.

The company also continues to make progress expanding beyond its core market of mobile gaming. During the first quarter, Unity garnered new customers from a variety of new sectors such as automotive, healthcare, government, and retail, among others.

Unity remains confident that the recent changes Apple (NASDAQ: AAPL) rolled out in April regarding Identifier for Advertisers (IDFA) will only have a minimal impact on the company’s advertising business. The Mac maker now prompts users to allow apps to track them for ad targeting purposes, a pro-privacy change that has important implications for the broader advertising industry.

Looking ahead

Guidance for the second quarter calls for revenue in the range of $240 million to $245 million, which translates into growth of 30% to 33%. That top-line forecast is ahead of the $232 million in sales analysts are expecting. That should all result in an adjusted operating loss of $30 million to $40 million.

For the full-year 2021, Unity is expecting revenue of $1 billion to $1.02 billion, similarly topping the market’s expectations of $967.2 million in revenue. The company says that its adjusted operating loss for the year should be in the range of $90 million to $100 million.

Unity reiterated its long-term target for 30% annual revenue growth while acknowledging that results can be bumpy during some quarters or years.

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Evan Niu, CFA owns shares of Unity Software Inc. The Motley Fool owns shares of and recommends Unity Software Inc. Millennial Money is part of The Motley Fool network. Millennial Money has a disclosure policy.

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