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Game engine maker Unity (NYSE:U) reported results ahead of analysts' expectations in Q2 CY2024, with revenue down 15.8% year on year to $449.3 million. It made a GAAP loss of $0.32 per share, improving from its loss of $0.51 per share in the same quarter last year.
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Unity (U) Q2 CY2024 Highlights:
- Revenue: $449.3 million vs analyst estimates of $441.7 million (1.7% beat)
- EPS: -$0.32 vs analyst estimates of -$0.46 (29.9% beat)
- Gross Margin (GAAP): 75.8%, up from 70.8% in the same quarter last year
- Free Cash Flow of $79.61 million is up from -$14.56 million in the previous quarter
- Net Revenue Retention Rate: 96%, down from 101% in the previous quarter
- Market Capitalization: $5.44 billion
Design SoftwareThe 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 GrowthAs you can see below, Unity's 30.4% annualized revenue growth over the last three years has been impressive, and its sales came in at $449.3 million this quarter.
This quarter, Unity's revenue was down 15.8% year on year, which might disappointment some shareholders.
Looking ahead, Wall Street was expecting revenue to decline 8% over the next 12 months before the earnings results announcement.
Product SuccessOne of the best parts about the software-as-a-service business model (and a reason why SaaS companies trade at such high valuation multiples) is that customers typically spend more on a company's products and services over time.
Unity's net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 96% in Q2. This means Unity's revenue would've decreased by 4% over the last 12 months if it didn't win any new customers.
Unity's already weak net retention rate has been dropping the last year, signaling that some customers aren't satisfied with its products, leading to lost contracts and revenue streams.
Key Takeaways from Unity's Q2 Results We were impressed by Unity's strong gross margin improvement this quarter. We were also happy its revenue narrowly outperformed Wall Street's estimates. On the other hand, its net revenue retention fell. Overall, this quarter could have been better. The stock remained flat at $14.25 immediately after reporting.
