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Unity Technologies reported today that revenues for the fourth quarter ended December 31 hit $220.3 million, up 39% from the same quarter a year ago.
Unity’s quarterly loss from operations was $80.8 million, or 37% of revenue, compared to a loss from operations of $48.6 million, or 31% of revenue, in the fourth quarter of 2019.
The non-GAAP loss from operations was $20.1 million, compared to a loss of $23.9 million a year earlier. On a per-share basis, the non-GAAP loss was 31 cents, compared to a loss of 97 cents a share a year earlier.
On September 18, Unity raised more than $1.3 billion in an IPO on the New York Stock Exchange at a $13.6 billion valuation. Unity makes tools for developers to create games and other computer-generated entertainment, and its game engine runs thousands of console, mobile, and PC titles.
CEO John Riccitiello said in a statement, “Unity achieved record fourth quarter and full year 2020 revenues in an unprecedented and fast changing technological and economic environment. As the leader in creating and operating tools for the world of real-time 3D content, we continue to invest with the intent to capture what we believe is a substantial opportunity ahead in 2021 and years beyond.”
In the quarter, Unity said that 793 customers generated more than $100,000 each of revenue in the past 12 months (trailing 12 months), compared to 600 a year ago.
For the full year, revenue was $772.4 million, up 43% from 2019. The loss from operations was $274.8 million, and the non-GAAP loss from operations was $50.6 million.
For the full year ending December 31, 2020, Unity had previously said it expected revenues of $752 million to $756 million, with the operating loss hitting $66 million to $71 million. Fourth-quarter revenue was expected to be between $200 million and $204 million. Non-GAAP operating profit margin was expected to be a loss of $35 million to $45 million.
In 2019, the San Francisco maker of the Unity game engine — with 1.5 million monthly active users that create games and other content — reported a loss of $163.2 million on revenue of $541.8 million. In 2018, the company reported a loss of $131.6 million on revenue of $380.7 million.
Unity is one of the most important technologies in gaming, as software built with its tools is running on more than 1.5 billion devices. Unity said its platform is used in over 50% of mobile games, PC games, and console games. Rivals include Epic Games’ Unreal Engine, as well as more specialized engines, such as Cocos2d.
Unity believes its addressable market is $29 billion across games and entertainment, including TV commercials and animated films. Games made in Unity include Fall Guys: Ultimate Knockout, Township, Ori and the Will of the Wisps, and Oddworld: Soulstorm.
While Unity has some chart-toppers like Fall Guys, it doesn’t have a meaningful share of triple-A titles. Most of those games are made by big companies with their own game engines, like Activision Blizzard, Electronic Arts, Take-Two Interactive, and Ubisoft.
While Unity makes money on subscriptions, it is also very dependent on advertising for revenue. That’s a tough business at the moment, and it’s become more uncertain with Apple’s recent decision to retire its Identifier for Advertisers (IDFA), which is akin to a cookie that helps with targeted advertising. Apple is doing this in the name of privacy, though it recently postponed the retirement as the game and app industry prepares new advertising approaches. But mobile advertising may soon prove more difficult, which could affect Unity.
Today, Unity said, “We expect the arrival of Apple’s iOS14’s privacy modifications on IDFA will affect the way mobile game developers acquire customers and how they optimize lifetime customer value. Although it’s difficult to estimate, our guidance assumes IDFA changes begin in the spring and will reduce our revenue by approximately $30 million, or 3% of revenue, in 2021.”
The Unity game engine differs from Unreal in its origins. Founders David Helgason, Nicholas Francis, and Joachim Ante started it in 2004 as a game company. Their first game failed, but they found a commercial opportunity in the tools they made to simplify game development, and they pivoted to a mission of “democratizing” game development. They targeted both 2D and 3D content, particularly in the fledgling mobile game industry. When the iPhone launched in 2007, Unity began taking off. Now it is moving to higher-quality productions and tools, giving competition to the PC and console focus of Unreal Engine. Both companies are meeting in the competitive middle, with Unity coming up from the low end and Epic Games moving down from the high end.
But Unity noted that game developers used Unity to launch titles for the new generation of Microsoft and Sony consoles in November. Titles made with Unity included Morkredd, an Xbox X/S console exclusive, and Haven and Overcooked 2: All You Can Eat, for both PlayStation5 and Xbox X/S.
In 2020, Unity said games made with Unity accounted for 71% of the top 1,000 mobile games in the fourth quarter of 2020. Monthly active end users who consumed content created or operated with Unity reached, on average, 2.7 billion per month in the fourth quarter of 2020, up 63% from a year earlier. Applications built with Unity were downloaded, on average, five billion times per month in the fourth quarter of 2020, up 41% from last year.
Regarding guidance, Unity said, “When thinking about 2021 guidance, we want to level set on where we are starting the year revenue-wise on a normalized basis. Our best estimate is that netted across our lines of business, COVID-19 boosted our revenue by approximately $25 million, or 3% of revenue, for the full year 2020.”
The company added, “COVID-19 protocols and precautions also materially reduced travel and spending on events and facilities in 2020, saving approximately $40 million in operating expenses, net of some reinvestment, that will likely not be repeated in future years.”
Riccitiello said in the analyst call that Unity has hired Marc Whitten, an Amazon vice president and former Microsoft Xbox executive, to run the Create Solutions business for game development. This comes after Riccitiello hired former Electronic Arts executive Peter Moore to head the sports and entertainment business at Unity.
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