Unity Software nyse U Stock Tumbles on Weak Q1 Guidance

Unity Software (NYSE: U) Stock Tumbles on Weak Q1 Guidance

Unity Software (NYSE: U) stock fell after the company issued weaker-than-expected guidance for the first quarter.

Unity Software (U) has issued guidance for the current quarter that falls significantly short of Wall Street’s expectations. The renowned game development company, amidst a major overhaul of its portfolio and cost structure, anticipates a challenging period ahead.

Unity forecasts the first-quarter adjusted earnings to range between $45 million and $50 million, well below the analysts’ estimate of $113.

Furthermore, Unity has outlined a shift in its approach to future revenue guidance. Moving forward, the company intends to exclusively issue guidance for its “strategic portfolio,” encompassing its engine, cloud, and monetization business units. This strategic pivot follows Unity’s recent decision to streamline operations, including a workforce reduction of 1,800 employees as part of a corporate restructuring plan. Unity has opted to discontinue initiatives deemed “non-strategic,” such as professional services and the Luna marketing business.

In light of these adjustments, Unity has disclosed its first-quarter guidance for its strategic portfolio, projected to range from $415 million to $420 million. However, this falls significantly short of analysts’ expectations, who had forecasted a total first-quarter revenue of $534 million.

Unity said in a shareholder letter,

“We are right sizing our cost structure to grow from a healthy financial position. This includes the previously announced reduction of approximately 25% of our workforce, in addition to cloud hosting cost savings, office footprint consolidation, and software license optimization.”

The company stated on the conference call that it foresees strong financial performance in the back half of the year following the completion of a strategic portfolio reset.

Unity Q4 Results

In the fourth quarter, Unity (NYSE: U) posted a 35% year-over-year surge in revenue, reaching $609 million, slightly ahead of the $596 million consensus. However, the company reported a quarterly loss of 66 cents per share, missing analysts’ estimates, who projected a loss of 42 cents per share.

Create Solutions revenue reached $290 million, marking a 47% increase compared to the previous year, while Grow Solutions generated revenue of $319 million, reflecting a 26% rise year-over-year. The quarter yielded an operational cash flow of $72 million, with the free cash flow amounting to $61 million.

In October, Unity underwent a leadership transition as John Riccitiello stepped down from his position as CEO. Former Red Hat chief, James Whitehurst, succeeded him and assumed the role of interim CEO. Riccitiello’s departure coincided with Unity’s announcement of a pricing change, which stirred controversy among several video game developers.

In its letter to shareholders, Unity stated,

“We are committed to increasing shareholder value through revenue growth, margin expansion, and free cash flow generation, and we believe that the steps we have taken in the past few months position us for success in 2024 and beyond.”

Unity Software (NYSE: U) Stock Movement

Unity stock plunged 6.11% to close at $31.02 on Tuesday. The traders had exchanged hands with 46,736,085 (46.73 million) shares compared to the average daily trading volume of 11.52 million.