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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.

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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.

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