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Jim Whitehurst, CEO of Redhat.
Adam Jeffery | CNBC
Unity software Shares fell as much as 15% in extended trading Thursday after the video game engine maker reported a third-quarter revenue loss and didn’t issue guidance.
Here’s how the company did it:
- Income: Loss of 32 cents per share
- Gain: $544.2 million versus $553.7 million as expected by analysts, according to LSEG, formerly known as Refinitiv
The company’s revenue grew about 69% year over year, mainly thanks to its $2.9 billion acquisition of mobile advertising company IronSource, a regulatory filing showed. Net loss of $124.1 million decreased from $250.0 million in the same quarter last year.
“Our third quarter results were mixed,” Unity said in a letter to shareholders. “While sales were within expectations, we believe we can do better.”
The Create Solutions segment, which includes game development tools, generated $189 million in revenue, down slightly and below the consensus of $204.7 million among analysts polled by StreetAccount. Lower revenues from China were a factor due to the country’s continued restrictions on gaming.
In September, Unity announced new fees based on the number of people who install games built with Unity’s editor software, sparking outrage that hurt the stock in subsequent days. The company apologized and revamped its plans based on feedback, and on October 9, Unity said CEO John Riccitiello was retiring effective immediately, with former Red Hat CEO Jim Whitehurst acting as interim chief. The new rates will come into effect at the beginning of 2024.
“While we did not expect the implementation of the fees to be easy, implementation created friction for our customers and short-term headwinds,” Unity said in the letter. “We expect the impact of this business model change to have minimal benefit through 2024 and to increase from then on as customers adopt our new releases.”
Unity’s Grow Solutions segment, which includes gaming publishing and advertising, contributed $355.3 million to revenue, up nearly $166% and ahead of the StreetAccount consensus of $345.3 million. The pressure resulting from the new compensation weighed on the division’s results.
Management has been trying to figure out how best to charge customers for its products and expects to implement a new plan this quarter. The new strategy could mean terminations, layoffs and a reduction in office space. In May, the company announced it would lay off 600 employees, or about 8% of its workforce.
The timing is not clear and therefore the company does not provide guidance, according to the shareholder letter.
“A lot of people are grumpy about that,” Whitehurst said on a conference call with analysts.
Whitehurst sold Red Hat IBM for $34 billion in 2019. He said he sees some parallels between Red Hat and Unity, including market leadership and revenue growth. One analyst asked during the call whether Whitehurst would remain as permanent CEO. The board is conducting a search, Whitehurst said.
Changes to the company will be implemented by the end of the first quarter of 2024, said Luis Felipe Visoso, Unity’s chief financial officer.
Despite Thursday’s move, Unity shares are down about 12% this year, while the S&P 500 index is up 13%.
