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Unity Software (U) to Post Q1 Earnings: What's in the Cards?

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·5 min read
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Unity Software U is set to release first-quarter 2021 results on May 11.

For the quarter under review, the company projects revenues between $210 million and $220 million, and revenue growth in the range of 26-32% year over year. The Zacks Consensus Estimate for revenues is currently pegged at $216.2 million.

Moreover, the consensus mark for the bottom line is pegged at a loss of 12 cents per share, unchanged over the past 30 days.

Let’s see how things have shaped up prior to the upcoming announcement.

Unity Software Inc. Price and EPS Surprise

Unity Software Inc. Price and EPS Surprise
Unity Software Inc. Price and EPS Surprise

Unity Software Inc. price-eps-surprise | Unity Software Inc. Quote

Factors to Consider

Unity Software’s first-quarter top line is expected to have benefited from robust demand for its software solutions from content creators like game developers, architects, automotive designers and filmmakers. Growing momentum in the Operate Solutions business is likely to have served as a key catalyst.

In addition, the online gaming industry has been witnessing accelerated growth owing to the pandemic-led shelter-in-place guidelines. This, in turn, is expected to have driven the adoption of Unity’s real-time 3D technology among gaming companies globally.

Further, steady demand for interactive, real-time 2D and 3D content for mobile phones, tablets, PCs and virtual reality devices is likely to have aided the company’s top line.

According to Unity Software’s 2021 Gaming Report: Unity Insights from 2020 and Predicted Trends for 2021, overall mobile game ad revenues in 2020 grew by more than 8% year over year while first-day IAP purchases rose by over 50% year over year.

With more than 2.8 billion monthly active consumers of content created or operated with Unity solutions, large content updates for live multiplayer games resulted in peak concurrent user spikes of over 11% on average.

Further, the company’s partnership with Snap SNAP to extend the reach of Unity’s Ad supply to Snapchat advertisers is expected to be a key catalyst. It also brings Snap technology to mobile game developers through select Snap Kit tools and gives Unity developers access to Snapchat’s 249 million daily active users.

The above-discussed partnership is anticipated to have expanded the reach of Unity’s platform to a wide mobile gaming audience base, thereby stoking top-line growth during the quarter to be reported.

Apart from this, Unity has been expanding its platform by introducing product capabilities, which are likely to have been a major growth driver.

During the first quarter, the company released its Object Pose Estimation demonstration, which combines the power of computer vision and simulation technologies illustrating how Unity’s AI and Machine Learning capabilities are having real-world impact on the use of robotics in industrial settings.

Moreover, the company announced collaborative agreement with HERE Technologies, the leading location data and technology platform, to partner on developing next-generation embedded automotive HMIs with state-of-the-art, RT3D rendering capabilities.

Notably, monthly active end users were, on average, 2.7 billion per month in the fourth quarter, surging 63% year over year.

Furthermore, the company’s dollar-based net expansion rate, which measures expansion in existing customers’ revenues over a trailing 12-month period, grew from 133% as of Sep 30, 2020, to 138% as of Dec 31, 2020.

The momentum is likely to have continued in the soon-to-be-reported quarter, primarily on strong adoption of the company’s subscription-based Create Solutions and Operate Solutions.

Key Developments in Q1

During the first quarter, Unity Software announced the acquisition of VisualLive, a technology company enabling the architecture, engineering, and construction (AEC) industry to reduce costs and increase efficiency by visualizing and collaborating in augmented reality. This acquisition expands Unity's strategic growth in the AEC industry and allows customers to achieve optimal efficiency and cost-savings.

What Our Model Says

According to the Zacks model, the combination of a positive Earnings ESP and Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

Unity Software has an Earnings ESP of 0.00% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks That Warrant a Look

Here are a few companies, which, per our model, have the right combination of elements to post an earnings beat in their upcoming release.

Ralph Lauren Corporation RL has an Earnings ESP of +6.25% and is Zacks #1 Ranked. You can see the complete list of today’s Zacks #1 Rank stocks here.

Agilent Technologies, Inc. A has an Earnings ESP of +1.57% and a Zacks Rank #2.

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