Unity expects more layoffs, while calling Runtime Fee “critical step” to make its Create segment sustainable

Financial highlights

• According to its Q3 shareholder letter, Unity reached $544 million in revenue, up 68.4% year-over-year.
• The Grow Solutions segment (ad, publishing, and monetization tools) generated $355 million, up 166% compared to the same period last year. According to StreetAccount, this is also higher than the $345.3 million consensus among analysts (via CNBC).
• Unity’s Create Solution segment (game development tools) reached $189 million in revenue, flat year-over-year with core subscriptions up 19% excluding China. This is below the $204.7 million consensus.
• “Three factors negatively impacted growth this quarter: Unity Game Services (UGS), China and Professional Services. UGS had a record third quarter last year from new game launches, China revenue declined from continued government restrictions on gaming, and we continue to reduce our reliance on Professional Services,” the company explained.
• Net loss was $125 million compared to the $250 million loss in the same period last year.
• Following the report, Unity shares plunged 15% in extended trading.

Unity still believes in the Runtime Fee, while planning more layoffs

• Speaking of its controversial pricing update, Unity called it a “critical step to make Create [Solutions] a sustainable business.”
• It acknowledged that the Runtime Fee rollout “created friction with our customers and near-term headwinds.” “We expect the impact of this business model change to have minimal benefit in 2024 and ramp from there as customers adopt our new releases,” the company said.
• Unity plans to increase its focus on the engine and monetization solutions, while also exploring new growth opportunities in other areas like AI.
• Another part of its strategy is to tighten the integration between its Create and Grow segments and create more value for customers: “We are currently capturing synergies within Grow Solutions, but not yet across businesses, which we believe presents an opportunity that is unique to Unity.”
• The company believes that these steps, if executed rightly, will help it deliver faster revenue growth and improved profitability metrics.
• Unity recently started a “comprehensive assessment” of its product portfolio, expecting to make final decisions over the next few weeks. The changes will be implemented before the end of the first quarter of 2024.
• “This will likely include discontinuing certain product offerings, reducing our workforce, and reducing our office footprint,” the company said.
• Earlier this year, Unity laid off roughly 600 employees, in addition to several hundreds of people that were let go in January 2023 and June 2022. And the company’s new report indicates that even more jobs could be cut before March 31, 2024.