Shares of Unity Software Inc. (U) plummeted more than 6% in after-hours trading on Tuesday, November 7, 2024, following the company's release of its third-quarter 2024 financial results. The software company reported a 14.1% year-over-year decline in revenue to $1.36 billion, missing analysts' expectations and sparking concerns among investors.
The disappointing results were driven by increased competition and macro headwinds that weighed on Unity's key business segments. The Create Solutions segment, which caters 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 an 11.4% revenue decline, attributed to heightened advertising competition, restrictions in China's gaming industry, and unfavorable foreign exchange impacts.
Unity's gross margin also took a hit, contracting by 3.5 percentage points to 72.8%. The company incurred $205 million in employee severance costs related to a 25% workforce reduction, further straining its profitability. Management acknowledged the challenges and vowed to focus the portfolio on strategic Create and Grow offerings to improve profitability going forward.
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