AppLovin Merger Proposal Shot Down

On Aug. 15, 2022, Unity reject a $20 billion all stock merger proposal from AppLovin (NYSE: APP) for around $58.85 per share. The Board of Directors determined that a merger with AppLovin would not be superior to its acquisition of ironSource software, an app monetization technology platform. It decided to move forward with the acquisition of ironSource for $4.4 billion to close in Q4 2022 in the best interest of its shareholders. This started the downward spiral from a high of $58.63 to a 10-week sell-off to a lows of $27.60 on Oct. 21, 2022. However, the decision was lauded by Needham’s analyst Bernie McTernan who commented, “This positioning will be further bolsters should Unity close the proposed ironSource acquisition, with Create and SuperSonic acting as the vital on-ramps for creators to then use Unity’s monetization tools, with ironSource filling in the final holes in the create of an end-to-end platform.” The acquisition prepares Unity to accommodate diversified demand for content creation while hedging itself against lower consumer spending and tougher competition in the monetization industry.

Roblox Reversal of Fortune

Just as it seemed the video gaming segment was falling off a cliff with various warnings including GPU maker Nvidia (NASDAQ: NVDA), Roblox (NASDAQ: RBLX) reported much improved September 2022 metrics that shot its shares up 18%. Its daily average users (DAU) rose 23% to 57.8 million. Total hours engaged rose 16% YoY to four billion. Estimated bookings rose 11%  were between $212 million to $219 million. Estimated average bookings per daily active user were between $3.67 to $3.79. Estimated revenues were between $171 million to $180 million. Foreign currency fluctuations led to a reduction of (-6%) in YoY growth rate in September bookings.

Setting the Bar Lower

On Aug. 9, 2022, Unity released its fiscal second-quarter 2021 results for the quarter ending June 2022. The Company reported an earnings-per-share (EPS) loss of (-$0.18) beating analyst estimates for (-$0.21), by $0.03. Revenues grew 8.6% year-over-year (YoY) to $297 million missing $299.05 million consensus analyst estimates. The Company grew its $100,000 clients to 1,085 from 888 in the same year-ago period. Unity partnered with Microsoft select Azure as its cloud partner build real-time 3D experienced from the Unity engine. Unity CFO Luis Visoso commented, “In Create we have momentum with customers in and outside of Games. Our Business outside of Games is growing even faster and now represents 40% of our total Create Solutions revenue, up from 25% in 2021.”

Lowering the Bar

Unity issued downside guidance for its Q3 2022 revenues to come in between $315 million to $335 million versus $346.25 million consensus analyst estimates with non-GAAP operating margin between (-10%) to (-16%). For full-year 2022, Unity expects revenues to range from $1.30 billion to $1.35 billion versus $1.36 billion consensus analyst estimates.