Unity (NYSE:U) Beats Expectations in Strong Q2, Lifts Full Year Guidance

Jabin Bastian /
2021/08/10 4:10 pm EDT

Game engine maker Unity (NYSE:U) reported Q2 FY2021 results beating Wall St's expectations, with revenue up 48.4% year on year to $273.5 million. Unity made a GAAP loss of $148.3 million, down on its loss of $27.3 million, in the same quarter last year.

Is now the time to buy Unity? Access our full analysis of the earnings results here, it's free.

Unity (U) Q2 FY2021 Highlights:

  • Revenue: $273.5 million vs analyst estimates of $242.7 million (12.6% beat)
  • EPS (non-GAAP): -$0.02 vs analyst estimates of -$0.12
  • Revenue guidance for Q3 2021 is $262.5 million at the midpoint, above analyst estimates of $254 million
  • The company lifted revenue guidance for the full year, from $1 billion to $1.05 billion at the midpoint, a 4.46% increase
  • Free cash flow was negative -$33.49 million, compared to negative free cash flow of -$100.63 million in previous quarter
  • Net Revenue Retention Rate: 142%, in line with previous quarter
  • Customers: 888 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 78.8%, up from 74.9% previous quarter

“At Unity, our goal is to provide creators with the best tools to succeed as RT3D creators,” said John Riccitiello, President and Chief Executive Officer, Unity.

Founded in 2004 as a game studio by three friends in a Copenhagen apartment, Unity (NYSE:U) is a software as a service platform that makes it easier to develop and monetize new games and other visual digital experiences.

The 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 or interactive movies.

Sales Growth

As you can see below, Unity's revenue growth has been impressive over the last year, growing from quarterly revenue of $184.3 million, to $273.5 million.

Unity Total Revenue

And unsurprisingly, this was another great quarter for Unity with revenue up an absolutely stunning 48.4% year on year. On top of that, revenue increased $38.7 million quarter on quarter, a very strong improvement on the $14.4 million increase in Q1 2021, and a sign of acceleration of growth.

Analysts covering the company are expecting the revenues to grow 24% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

There are others doing even better. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 400% since the IPO in December. You can find it on our platform for free.

Large Customers Growth

You can see below that at the end of the quarter Unity reported 888 enterprise customers paying more than $100,000 annually, an increase of 51 on last quarter. That is quite a bit more contract wins than last quarter and about the same as what we have seen lately, demonstrating the company has the sales momentum required to drive continued growth. We've no doubt shareholders will take this as an indication that the company's go-to-market strategy is running smoothly.

Unity customers paying more than $100,000 annually

Key Takeaways from Unity's Q2 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on Unity’s balance sheet, but we note that with market capitalisation of $30.8 billion and more than $1.58 billion in cash, the company has the capacity to continue to prioritise growth over profitability.

We were impressed by how strongly Unity outperformed analysts’ revenue expectations this quarter. And we were also excited to see the really strong revenue growth. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. The company is up 3.6% on the results and currently trades at $111 per share.

Unity may have had a good quarter, so should you invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our full report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.