Q2 2024 Summary
Published Jan 16, 2025, 12:37 AM UTC- Unity's Industries segment, targeting non-gaming sectors like automotive, retail, and manufacturing, grew 59% year-over-year in the second quarter and now represents 18% of Create Solutions revenue, up from 12% in the same quarter last year and 15% at the end of 2023. This rapid growth indicates successful diversification beyond gaming and strong demand in new markets.
- Unity added several high-profile customers in Q2, including Audi, Diageo, and Bosch Rexroth, demonstrating strong traction in industries and the potential for continued expansion into new verticals.
- Under the new CEO, Matthew Bromberg, Unity is fostering a culture of execution and accountability, accelerating product innovation, strengthening customer relationships, and adding world-class talent. This strategic focus is expected to drive improved performance and unlock long-term value.
- Unity reduced its full-year revenue guidance, attributing the decline to a more cautious view on the expected recovery in the Grow business, particularly in monetization. This indicates that the turnaround in the Grow segment is taking longer than anticipated, and the company is not counting on seasonal improvements in the last quarter.
- Management is unable to provide a clear timeline for achieving the "Rule of 40"—a combined metric of revenue growth and profitability. CEO Matthew Bromberg stated it's "a little bit too soon" to forecast when Unity will reach this goal, suggesting uncertainty in hitting long-term financial targets.
- Significant work is still needed to improve Unity's advertising business, including a fundamental rebuild of the machine learning and data infrastructure stack. This implies that current ad products may be underperforming, and the benefits from these improvements may not materialize in the near term.
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Guidance and Grow Outlook
Q: Why was guidance reset, and is there caution on Grow?
A: Management reset guidance due to added caution on the Grow side, guiding stable Q3 to Q4 revenues without expecting significant seasonality. They are being more cautious, focusing on restoring credibility and taking a prudent approach to forecasting. -
Rule of 40 Target
Q: Is the Rule of 40 goal still applicable?
A: The Rule of 40 remains the right goal, aiming for attractive revenue growth and meaningful profitability. While focused on delivering sustainable growth on both top and bottom lines, it's too soon to forecast exactly when they'll achieve it. -
Create Segment Growth Drivers
Q: How will Unity 6 and pricing impact Create growth?
A: Price increases and Unity 6 will contribute to growth over time. Price increases take time to flow through, but the subscription business continues to show strong double-digit growth. The Industry SKU is a success, significantly higher priced, helping drive more revenue. -
Ad Business Revamp
Q: What's the plan for improving the ad business?
A: Unity is enhancing its ad business by updating products and models, and fundamentally rebuilding the machine learning and data infrastructure stack to gain differential capabilities. This work is expected to be executed relatively quickly to have a long-term impact. -
Industry (Non-Gaming) Growth Potential
Q: Are there incremental gains in the non-gaming Create business?
A: Management is excited about the industry segment's growth, seeing it as a natural extension of gaming capabilities. They added new customers like Audi, Diageo, and Bosch Rexroth in Q2 and see significant opportunity in sectors like auto, retail, and manufacturing. -
Go-to-Market Changes in Industry
Q: Any changes in go-to-market for the industry segment?
A: While historically growth has been driven by incoming customer demand, Unity plans to complement this with a larger go-to-market motion through partnerships with system integrators and other alliances, seeing much runway for expansion. -
Company's Strategic Playbook
Q: What's the strategy to get back to growth and execution?
A: The plan involves creating a culture of execution and accountability, adding world-class talent, listening better to customers, and accelerating product innovation. Management believes they have all the pieces needed and are focused on execution to realize their vision. -
Unity's Positioning in Industry
Q: What's the assessment of Unity's industry positioning?
A: Unity sees itself as central to the ecosystem, with the game economy being 60% of the app economy, touching billions of players, and having hundreds of thousands of developers. The focus is on execution, accountability, and deepening customer relationships to leverage this strong position. -
Focus Between Gaming and Non-Gaming
Q: How will investments be balanced between gaming and non-gaming?
A: While fixing relationships with gaming customers and improving the ad business are priorities, Unity views the industry (non-gaming) business as a natural extension of their core gaming segment. Technology investments benefit both, and there is no lack of enthusiasm for the industry segment. -
Ad Business Competitiveness and Assets
Q: Do you need new assets to improve the ad business?
A: Unity plans to enhance the ad business by updating models and products and ensuring they have the most modern data and machine learning stack to leverage their data advantages. They believe they have all the pieces needed to compete effectively without requiring new assets.