Unity Stock Falls After Gaming Software Company Forecasts Slowing Revenue Growth

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  • Unity reported fourth-quarter revenue growth of 39%, topping analysts' estimates.
  • Its forecast for the first quarter was in the middle of the expected range.
  • The company, which sells software to game developers, went public in September.

Unity Software shares fell as much as 16% in extended trading on Thursday after the video game engine developer provided a forecast that failed to meet analysts' most optimistic estimates

Here's how the company did in the fourth quarter:

  • Earnings: Loss of 10 per share, adjusted, vs. loss of 14 cents per share as expected by analysts, according to Refinitiv.
  • Revenue: $220.3 million, vs. $204.23 as expected by analysts, according to Refinitiv.

Revenue increased 39% from a year earlier, compared with 53% growth in the prior quarter, according to a statement.

While fourth-quarter results topped estimates, the company's forecast was disappointing for investors that bought into the stock rally. Since its IPO in September at $52 a share, Unity has almost tripled in value to $149.81 at Thursday's close.

Unity said it expects $210 million to $220 million in first-quarter revenue, which would imply about 29% annualized growth. At the middle of the range, the forecast is about inline with the $214.7 million consensus among analysts polled by Refinitiv.

For all of 2021, Unity said it sees $950 million to $970 million in revenue. The middle of that range, $960 million, would represent 24% growth and is just ahead of the $956.1 million average analyst estimate.

The company said in the statement that, "Our goal is to build a company that delivers revenue growth of approximately 30% over the long run."

Unity expects momentum in user engagement, including growth in the number of people who consume content created with its software, to continue in 2021 even as the coronavirus pandemic recedes, Kim Jabal, the company's finance chief, said during a conference call with analysts.

At the same time, Unity expects to endure a short-term impact after Apple introduces a privacy change that's expected this spring, Jabal said, leading to a 3% decrease in revenue in all of 2021. Advertising is the largest piece of Unity's Operate Solutions segment, which delivers 61% of revenue, Jabal said.

"We have been working on this, honestly, for years," she said.

Unity has hired Marc Whitten, an Amazon vice president and former Microsoft executive, to run the Create Solutions business for game development, Unity CEO John Riccitiello said on the conference call.

In the latest quarter, Unity said it was acquiring RestAR, a company whose artificial-intelligence software helps brands make 3D product renderings with mobile devices. The company also announced a deal with Snap that sought to make Unity advertising inventory in apps and games available to companies that advertise with Snap.

Excluding the after-hours move, Unity shares are down 3% so far this year, while the S&P 500 index is up about 3% over the same period.

Nominations are open for the 2021 CNBC Disruptor 50, a list of private start-ups using breakthrough technology to become the next generation of great public companies. Submit by Friday, Feb. 12, at 3 pm EST.

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