Game engine maker Unity (NYSE:U) reported Q3 CY2024 results beating Wall Street’s revenue expectations , but sales fell 18% year on year to $446.5 million. The company expects next quarter’s revenue to be around $424.5 million, close to analysts’ estimates. Its GAAP loss of $0.31 per share was also 19.7% above analysts’ consensus estimates.

Is now the time to buy Unity? Find out in our full research report.

Unity (U) Q3 CY2024 Highlights:

• Revenue: $446.5 million vs analyst estimates of $428.2 million (4.3% beat)

• EPS: -$0.31 vs analyst estimates of -$0.39 (19.7% beat)

• EBITDA: $91.72 million vs analyst estimates of $82.03 million (11.8% beat)

• Revenue Guidance for Q4 CY2024 is $424.5 million at the midpoint, roughly in line with what analysts were expecting

• EBITDA guidance for the full year is $365.5 million at the midpoint, above analyst estimates of $358 million

• Gross Margin (GAAP): 74.9%, up from 72.2% in the same quarter last year

• Operating Margin: -28.5%, down from -23.4% in the same quarter last year

• EBITDA Margin: 20.5%, down from 24.1% in the same quarter last year

• Free Cash Flow Margin: 40.4%, up from 17.7% in the previous quarter

• Market Capitalization: $8.6 billion

Company Overview

Started as a game studio by three friends in a Copenhagen apartment, Unity (NYSE:U) is a software as a service platform that makes it easier to develop and monetize new games and other visual digital experiences.

Design Software

The demand for rich, interactive 2D, 3D, VR and AR experiences is growing, and while the ubiquitous metaverse might still be more of a buzzword than a real thing, what is real is the demand for the tools to create these experiences, whether they are games, 3D tours or interactive movies.

Sales Growth

A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, Unity’s sales grew at a solid 24.6% compounded annual growth rate over the last three years. This is a useful starting point for our analysis.

This quarter, Unity’s revenue fell 18% year on year to $446.5 million but beat Wall Street’s estimates by 4.3%. Management is currently guiding for a 30.3% year-on-year decline next quarter.

Looking further ahead, sell-side analysts expect revenue to decline 12.1% over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and shows the market thinks its products and services will face some demand challenges.

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