Unity's (NYSE:U) Q4 Sales Top Estimates, Stock Jumps 13%

Kayode Omotosho /
2022/02/03 4:54 pm EST

Game engine maker Unity (NYSE:U) reported Q4 FY2021 results topping analyst expectations, with revenue up 43.3% year on year to $315.8 million. Guidance for the full year exceeded analyst estimates by 3%, however, guidance for the next quarter was less impressive, coming in 1.41% below analyst estimates. Unity made a GAAP loss of $161.6 million, down on its loss of $83.5 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) Q4 FY2021 Highlights:

  • Revenue: $315.8 million vs analyst estimates of $295.7 million (6.81% beat)
  • EPS (non-GAAP): $0.51 vs analyst estimates of -$0.07 ($0.58 beat)
  • Revenue guidance for Q1 2022 is $317.5 million at the midpoint, below analyst estimates of $322 million
  • Management's revenue guidance for upcoming financial year 2022 is $1.49 billion at the midpoint, predicting 34.6% growth (vs 43.1% in FY2021) and exceeding analyst estimates by 3%
  • Free cash flow was negative $53.4 million, down from positive free cash flow of $34.2 million in previous quarter
  • Net Revenue Retention Rate: 140%, in line with previous quarter
  • Customers: 1,052 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 76.6%, in line with same quarter last year

“Unity’s strong fourth-quarter and full-year results were driven by exceptional execution and innovation by the Unity teams,” said John Riccitiello, President and Chief Executive Officer, Unity.

Started 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 $220.3 million, to $315.8 million.

Unity Total Revenue

And unsurprisingly, this was another great quarter for Unity with revenue up 43.3% year on year. On top of that, revenue increased $29.5 million quarter on quarter, a very strong improvement on the $12.7 million increase in Q3 2021, and a sign of acceleration of growth.

Guidance for the next quarter indicates Unity is expecting revenue to grow 35.2% year on year to $317.5 million, slowing down from the 40.5% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $1.49 billion at the midpoint, growing 34.6% compared to 43.1% increase in FY2021.

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Large Customers Growth

You can see below that at the end of the quarter Unity reported 1,052 enterprise customers paying more than $100,000 annually, an increase of 79 on last quarter. That's in line with the number of contracts wins in the last quarter and quite a bit again above what we have typically seen over the last year, confirming the company is sustaining a good pace of sales.

Unity customers paying more than $100,000 annually

Key Takeaways from Unity's Q4 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 a market capitalization of $29.8 billion and more than $1.73 billion in cash, the company has the capacity to continue to prioritise growth over profitability.

We were impressed by the exceptional revenue growth Unity delivered this quarter. And we were also excited to see the strong guidance for the next year, although revenue guidance for the next quarter missed analysts' expectations and gross margin deteriorated a little. Zooming out, we think this was still a decent quarter, showing the company is staying on target. The company is up 13% on the results, after being down 10% during the regular session and currently trades at $104.51 per share.

Should you invest in Unity 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 actionable report which you can read here, it's free.

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