Game engine maker Unity (NYSE: U) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, but sales fell by 5.5% year on year to $435 million. On the other hand, next quarter’s revenue guidance of $420 million was less impressive, coming in 1.9% below analysts’ estimates. Its non-GAAP profit of $0.24 per share was significantly above analysts’ consensus estimates.
Is now the time to buy Unity? Find out by accessing our full research report, it’s free.
Unity (U) Q1 CY2025 Highlights:
- Revenue: $435 million vs analyst estimates of $416.8 million (5.5% year-on-year decline, 4.4% beat)
- Adjusted EPS: $0.24 vs analyst estimates of $0.11 (significant beat)
- Adjusted EBITDA: $83.94 million vs analyst estimates of $65.02 million (19.3% margin, 29.1% beat)
- Revenue Guidance for Q2 CY2025 is $420 million at the midpoint, below analyst estimates of $428 million
- EBITDA guidance for Q2 CY2025 is $72.5 million at the midpoint, below analyst estimates of $79.05 million
- Operating Margin: -29.4%, up from -81.4% in the same quarter last year
- Free Cash Flow Margin: 1.7%, down from 23.1% in the previous quarter
- Market Capitalization: $8.86 billion
"The Company’s first quarter results once again meaningfully exceeded expectations on both revenue and Adjusted EBITDA, highlighting our progress as we continue to build a culture of execution and discipline,” said Matt Bromberg, President and CEO of Unity.
Company Overview
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.
Sales Growth
A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last three years, Unity grew its sales at a 14.3% annual rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the software sector, which enjoys a number of secular tailwinds.
This quarter, Unity’s revenue fell by 5.5% year on year to $435 million but beat Wall Street’s estimates by 4.4%. Company management is currently guiding for a 6.5% year-on-year decline in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 1.6% over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and suggests its products and services will see some demand headwinds.
Here at StockStory, we certainly understand the potential of thematic investing. Diverse winners from Microsoft (MSFT) to Alphabet (GOOG), Coca-Cola (KO) to Monster Beverage (MNST) could all have been identified as promising growth stories with a megatrend driving the growth. So, in that spirit, we’ve identified a relatively under-the-radar profitable growth stock benefiting from the rise of AI, available to you FREE via this link.
Customer Acquisition Efficiency
The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.
Unity’s recent customer acquisition efforts haven’t yielded returns as its CAC payback period was negative this quarter, meaning its incremental sales and marketing investments outpaced its revenue. The company’s inefficiency indicates it operates in a highly competitive environment where there is little differentiation between Unity’s products and its peers.
Key Takeaways from Unity’s Q1 Results
We were impressed by how significantly Unity blew past analysts’ revenue, EPS, and EBITDA expectations this quarter. On the other hand, its revenue and EBITDA guidance for next quarter fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded up 1.8% to $21.72 immediately after reporting.
Big picture, is Unity a buy here and now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.
