Unity Software fails to provide full

- Unity Software on Aihua foreign exchangeThursday failed to provide full-year guidance after reporting mixed third-quarter results as revenue missed Wall Street estimates following slowing new game launches and weakness in China amid a government crackdown on gaming.

(U) slipped 13% in after-hours trading following the report.

The company reported a loss per diluted share of $0.32 on revenue of $544.2 million. Analysts had anticipated a loss of $0.49 on revenue of $554.2M.

Three factors, including Unity game services, professional services, and China, weighed on performance, the company said.

"China revenue declined from continued government restrictions on gaming, and we continue to reduce our reliance on Professional Service," it added.

Looking ahead, the company said it would share details of a plan on how it intends to streamline its product portfolio.

"[W]e are currently doing too much, we are not achieving the synergies that exist across our portfolio, and we are not executing to our full potential. We aim to address these opportunities to emerge as a leaner, more agile, and faster growing company." the company said.

Unity Software said it expects to start implementing the plan within this quarter and complete all interventions before the end of the first quarter of 2024.

As the exact timing of these interventions is "difficult to estimate," the company didn't providing guidance for the fourth quarter or the full year 2023, but said it would provide guidance for 2024 with its fourth quarter and full year 2023 results.

Reacting to the Unity results, analysts at Macquarie Equity Research, who maintained a Neutral rating and $20 per share 12-month price target on the stock, said there are "too many questions."

"Unity's disastrous price increases and lagging operational performance led to the ouster of its former CEO last month, so the Q3 earnings beat was a nice surprise," the analysts wrote. "Interim CEO James Whitehurst has entered to straighten out Unity's wayward operations, undertaking a comprehensive assessment of its strategy and product portfolio, with a sense of real urgency."

"We, therefore, have to assume revenue in Q4 and 2024 may be lackluster, with Create underperforming - whether due to the downdraft in managed services or China or to lost game developer business due to ongoing backlash at the new runtime fees, even as Unity has eased up on some of the terms and tried harder to engage with customers in a business that is probably pretty sticky," the analysts said, adding that there are too many uncertainties regarding the company's strategy.

Goldman Sachs said Unity's quarter was impacted by disruptions on top of macro and idiosyncratic challenges. "The absence of 4Q/CY24 guidance adds to these overhangs, which we believe will persist until management executes on its internal business review, provides guidance at its 4Q call and shows sturdy business health," they wrote in a note Friday.

"Though near-term divestments (estimated to be complete by 2Q24) are likely to reshape long-term initiatives within its Create ecosystem, we see the monetization-focused strategy as being credible and suspect that Unity will leverage this realignment to better position itself around its core competencies. This should allow the company to better capitalize the stakeholders it serves and execute against its addressable market opportunity," said the investment bank, which reiterated a Neutral rating on the stock but lowered the price target to $29 from $45 prior.

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