Unity expects some growing pains, though latest earnings clear Wall Street's bar

By Emily Bary

App-monetization company trims its full-year forecast, with new CEO saying 'investments in fundamental product enhancements will take some time to manifest in sustainable increased performance'

Unity Software Inc. saw revenue drop 16% in the latest quarter, though the top-line total came in better than analysts were expecting.

The company, which makes software for app monetization, is in the midst of a transformation under new leadership, after the prior management team angered developers. Unity (U) is coming off a "reset" of its portfolio and cost structure.

Overall revenue for the second quarter amounted to $449 million, whereas analysts were looking for $438 million. The company saw $426 million in revenue from its "strategic portfolio," down 6% from a year before but ahead of the company's forecast, which had a high range of $425 million.

"Our re-dedication to delivering for our customers is particularly evident in our advertising business," Matt Bromberg, the company's new chief executive, said in a shareholder letter. "Mobile advertising is an approximately $150 billion opportunity, and it's a market that won't be won or lost over short distances. Customers want robust competition in this space, and we're going to increase the pace of our product innovation to meet that challenge."

Rival AppLovin Corp. (APP) reported results an afternoon earlier, showing upbeat profit performance.

Read: AppLovin's big profit beat, positive outlook lift the app-monetization stock

Despite Unity's better-than-anticipated revenue performance in the second quarter, the company trimmed its outlook for the full year. Management now expects $1.68 billion to $1.69 billion in revenue from the strategic portfolio, down from a prior forecast that modeled $1.76 billion to $1.80 billion.

"The reduction in guidance represents a more cautious approach to the recovery in our Grow Solutions business, where investments in fundamental product enhancements will take some time to manifest in sustainable increased performance," Bromberg said in the shareholder letter.

Unity also lowered its outlook for full-year adjusted earnings before interest, taxes, depreciation and amortization, which now calls for $340 million to $350 million. Unity previously was targeting $400 million to $425 million but said the lower top-line expectations largely drive the new view.

"We believe that there are greater efficiencies to be gained over time through a more disciplined execution," Bromberg said in the shareholder letter.

For the second quarter, Unity logged adjusted Ebitda of $113 million, up from $88 million a year before, while analysts tracked by FactSet were looking for $83 million.

The company recorded a net loss of $125.6 million, or 32 cents a share, up compared with $192.2 million, or 51 cents, in the year-earlier period.

Unity also noted in the shareholder letter the departure of Luis Visoso, its chief financial officer. Mark Barrysmith, Unity's chief accounting officer, will serve as CFO in an interim capacity while the company searches for a permanent replacement.

-Emily Bary

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08-08-24 1706ET

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