Key Unity Software (U) Fourth Quarter Earnings Estimates, Revenue to A / A

Unity software U reported a loss of 10 cents per share in the fourth quarter of 2020, comfortably exceeding Zacks’ consensus estimate by 33.3%. The company recorded a loss of 79 cents per share in the previous year’s quarter.

Revenue of $ 220.3 million surpassed the consensus mark by 8.1%. In addition, the number jumped 39.4% year on year.

The company’s dollar-based net expansion rate was 138% in the reported quarter, up from 133% in the last reported quarter. In addition, customers who contributed more than $ 100,000 in revenue increased from 600 on December 31, 2019 to 793 on December 31, 2020.

Notably, in the fourth quarter, games developed with Unity accounted for 71% of the top 1,000 mobile games. In addition, monthly active end users were, on average, 2.7 billion per month in the reported quarter, increasing 63% year-over-year.

EPS price, consensus and surprise from Unity Software Inc.

Unity Software Inc. price-consensus-eps-surprise-chart | Unity Software Inc. quote

Segment details

Operate Solutions’ revenues (60.9% of total revenues) increased 54.4% year-over-year to $ 134.3 million. This solid absorption was based on strong execution and increased product improvements. In addition, the pandemic-induced tendency to stay at home, which increased player engagement on gaming platforms, was a major driver of growth for Unity’s Operate Solutions.

Create Solutions’ revenue (30.4% of total revenue) increased 39.4% year-over-year to $ 66.9 million. This increase was driven mainly by the strong performance in games and new sectors, led by the solid demand from customers for the company’s real-time 3D technology.

However, Strategic Partnerships and Other Revenues (8.7% of total revenues) fell 20.4% year on year, to $ 19.1 million, due to the longer business cycles caused by the pandemic.

Operational Details

Gross profit on a non-GAAP basis grew 34.1% year-over-year to $ 172.6 million from $ 128.7 million in the same quarter last year. However, gross margin contracted 309 bps year on year to 78.3%

Sales and marketing expenses increased 25.4% year-over-year, to $ 57.6 million. General and administrative expenses increased 10.4% year on year, to US $ 45.1 million. Research and development expenses increased 36.7% year-over-year, to $ 90 million.

Unity reported a non-GAAP operating loss of $ 20.1 million compared to the $ 23.9 million non-GAAP operating loss seen in the same quarter last year.

Balance sheet and cash flows

As of December 31, 2020, the company had cash and cash equivalents and restricted cash in the amount of $ 1.3 billion compared to $ 1.8 billion on September 30, 2020.

Cash flow from operations was $ 14.8 million, significantly above the reported value in the previous year’s quarter of $ 0.9 million. In addition, the free cash flow was $ 3.6 million compared to a negative free cash flow of $ 9.7 million reported in the same quarter last year.

Guidance

Unity projects revenue in the first quarter of 2021 between $ 210 million and $ 220 million and revenue growth in the range of 26-32% year on year. Non-GAAP operating loss is estimated to be between $ 30 million and $ 40 million.

In addition, the company expects revenues between $ 950 million and $ 970 million, and a non-GAAP operating loss between $ 90 million and $ 105 million for 2021.

The guidance includes the impact of AppleAAPL iOS14 privacy modifications in IDFA, which is expected to start this spring. The changes are likely to reduce Unity’s revenues by almost $ 30 million, 3% of revenues, by 2021.

However, the company believes that the high involvement in games led by the coronavirus, together with the ongoing digital transformation among companies, will continue to drive the adoption of Unity’s real-time 3D technology, thereby driving first-rate growth.

Zacks Rank & Stocks to consider

Unity Software currently has a Zacks Rank # 3 (Buy).

Some highly rated stocks in the broader technology sector are Advanced energy industries AEIS and Cohu COHU. Both stocks currently carry a Zacks Rank # 2 (Buy). You can see today’s complete list of Zacks # 1 (strong buy) rating stocks here.

Advanced Energy and Cohu are due to release quarterly figures on February 10 and 11, respectively.

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