Unity Software (U, Financial) faces challenges as it approaches multi-year lows, even after surpassing Q1 earnings and revenue forecasts and reaffirming its financial targets for FY24. The company, a major player in the video game industry, initiated a significant restructuring last year following a pricing backlash under the leadership of former CEO John Riccitiello. Despite assurances of staying on track for the year's financial goals, Unity's journey to regaining its previous stature remains steep due to declining consumer demand and previous management missteps. The slow appearance of results from its reset efforts has left investors cautious and hesitant.
Unity announced that Matt Bromberg, former COO of Zynga (TTWO, Financial), will take over as the permanent CEO, replacing interim CEO Jim Whitehurst, who will become Executive Chair. Initially, Bromberg is expected to maintain the current strategy, which might test the patience of investors looking for quick turnaround signs.
Unity's focus on its core businesses—Engine, Cloud, and Monetization—has not significantly impacted revenue, which fell 8.1% year-over-year to $460 million in Q1. However, its strategic portfolio saw a 2% increase year-over-year to $426 million, surpassing forecasts. Unity's shift towards divesting non-core assets and focusing on profitability has seen an improvement in adjusted EPS, rising to $0.35 this quarter from $0.03 in Q1 of the previous year. The company also reported a $50 million year-over-year increase in adjusted EBITDA, keeping it on track to meet its annual target of $400-425 million.
Unity's performance in FY24 will hinge on overcoming a forecasted 6-7% year-over-year decline in Q2 strategic revenue. Despite this setback, the company is optimistic about the second half of the year, expecting to see accelerated growth and a 2-4% increase in strategic revenue year-over-year.
Despite positive forecasts and leadership changes, Unity's stock remains near multi-year lows. Last quarter's reset plan was seen as a potential solution to its prolonged downturn. However, mere positive commentary is insufficient without tangible progress in financial metrics. Investors seem to be adopting a wait-and-see approach, likely to stay on the sidelines until later in the year when Unity anticipates the start of a significant recovery.
