Unity Software (NYSE:U) shares are down nearly 18% in the early session today after the video game software solutions provider announced lackluster fourth-quarter results. Revenue increased by 35% year-over-year to $609.27 million, exceeding estimates by nearly $56 million. However, a major chunk of this growth ($99 million) came from the termination of Unity’s service agreement with Wētā FX. Further, its net loss per share of $0.66 missed expectations by a wide margin of $0.90. In comparison, Unity had posted a net loss per share of $0.01 in the year-ago period.
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Excluding the Wētā FX transaction, Unity’s Create Solutions revenue declined by 4% year-over-year to $190 million. Its Grow Solutions revenue, on the other hand, increased by 26% to $319 million.
The company is now resetting its portfolio to focus on its core businesses and will limit new investments to the most lucrative opportunities. This move means Unity will exit hardware components for its multiplayer business, end independent development of professional artistry tools, and exit its Luna business. The businesses generated $283 million in revenue in 2023 but resulted in an adjusted EBITDA loss for the company.
Unity is also streamlining its cost structure. These efforts are expected to result in annualized cost savings of nearly $250 million for the company. For Fiscal Year 2024, Unity expects revenue in the range of $1,760 million to $1,800 million. Adjusted EBITDA for the year is estimated to be between $400 million and $425 million.
For the upcoming quarter, Unity foresees revenue in the range of $415 million to $420 million. Adjusted EBITDA for the quarter is seen hovering between $45 million and $50 million.
Is Unity Software a Buy, Sell, or Hold?
Today’s price erosion comes on top of a nearly 19% year-to-date decline in the company’s share price. Overall, the Street has a Moderate Buy consensus rating on Unity Software alongside an average price target of $37.50. However, analysts’ views on the stock could see a revision following its earnings report.
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