Unity Software Inc. (U) experienced a pre-market plunge of over 8% on November 8th, 2024, as the company reported disappointing third-quarter 2024 financial results that missed analysts' expectations. The software company's revenue declined by 18% year-over-year to $446.52 million, sparking concerns among investors.
The disappointing performance was driven by increased competition and macro headwinds that weighed heavily on Unity's key business segments. The Create Solutions segment, catering to small and medium customers, saw revenue drop by 21.9% due to lower sales and intensified competition. Meanwhile, the Grow Solutions segment, focused on advertising and gaming, suffered a 5% revenue decline, attributed to heightened advertising competition, restrictions in China's gaming industry, and unfavorable foreign exchange impacts.
Furthermore, Unity's gross margin contracted by 3.5 percentage points to 72.8%, and the company incurred $205 million in employee severance costs related to a 25% workforce reduction, further straining its profitability. Unity attributed the revenue decline to a portfolio reset and weak Grow Solutions revenue.
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