Unity (NYSE:U) Q2: Revenue Improves, Gross Margin Improves

Game engine maker Unity (NYSE:U) announced results exceed analysts’ expectations in Q2 CY2024, with revenue down 15.8% year-over-year to $449.3 million. The company incurred a GAAP loss of $0.32 per share, an improvement compared to a loss of $0.51 per share in the same quarter last year.

Is it time to buy Unity? Find out by accessing our full research report, it’s free.

Unity (NYSE:U) is a game studio founded by three friends in a Copenhagen apartment. It is a software-as-a-service platform that makes it easy to create and monetize new games and other visual digital experiences.

Design software

There is a growing demand for rich, interactive 2D, 3D, VR, and AR experiences, and while the ubiquitous metaverse may still be more buzzword than reality, there is a real need for the tools to create these experiences, whether they are games, 3D tours, or interactive movies.

Sales growth

As you can see below, Unity’s 30.4% year-over-year revenue growth over the past three years is impressive, with sales for the quarter coming in at $449.3 million.

Unity’s revenue for the quarter fell 15.8% year over year, which may disappoint some shareholders.

Looking ahead, Wall Street was expecting an 8% decline in revenue over the next 12 months ahead of the earnings report.

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Product success

One of the biggest benefits of the software-as-a-service business model (and the reason SaaS companies are valued at such high multiples) is that customers typically spend more on the company’s products and services over the long term.

Unity’s net revenue retention rate, a key performance indicator that measures how much money current customers from a year ago are spending today, was 96% in Q2. That means Unity’s revenue would have declined 4% over the past 12 months if no new customers had been acquired.

Unity’s already weak net retention rate has declined over the past year, indicating that some customers are dissatisfied with the company’s products, leading to lost business and revenue streams.

Key takeaways from Unity’s second quarter results

We were impressed by Unity’s strong gross margin improvement this quarter. We were also pleased that revenues slightly beat Wall Street estimates. On the other hand, net revenue retention declined. Overall, this quarter could have been better. Shares were flat at $14.25 immediately after the report.

Is Unity worth investing in now? When making a decision, it’s important to consider valuation, business features, and what’s happened in the last quarter. We’ve covered that in our full research report, which you can read here , it’s free.