Unity posts first profitable quarter on non-GAAP basis, expects to be profitable in 2023

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Unity has posted its first profitable quarter in the company's 18-year history, albeit on a non-GAAP basis.

In a letter to shareholders, the company reported a non-GAAP operating profit of $13 million for the three months ended December 31, 2022. For the first three quarters of this year, Unity posted a non-GAAP operating loss of $22 million, $44 million and $37 million respectively.

The company also reported record full-year revenues at $1.39 billion.

Here's what you need to know:

The numbers

Q4 2022

• Revenue: $451.3 million (up 43% year-on-year)
• Create Solutions revenue: $198 million (up 98.2%, but now also includes Unity Gaming Services and Strategic Partnerships)
• Grow Solutions revenue: $253 million (no prior comparison, first time posted under a different reporting structure)
• Operating loss: $274 million (89% change from operating loss of $144.8 million in 2021)
• Non-GAAP operating income: $13 million (up 208% from operating loss of $12 million in 2021)

FY 2022

• Revenue: $1.39 billion (up 25%)
• Non-GAAP operating loss: $90 million (77.5% change from operating loss of $50.7 million in 2021)

The highlights

In an earnings call, senior vice president and chief financial officer Luis Visoso told investors that while Unity was only profitable (on a non-GAAP basis) in Q4 2022, the company expects to be "profitable every single quarter" in 2023.

He said the profitability improvement is roughly equal between Create Solutions – the segment of the business that focuses on the Unity Engine – and Grow Solutions, a new reporting segement that handles Unity's ads products and services.

"Going forward, Create Solutions will include all products that were included in Create Solutions in 2022 plus Unity Gaming Services, which was previously reported under Operate, and Strategic Partnerships, which was previously reported separately," the company explained.

"Grow Solutions will include our Ads products, Supersonic, Aura and Luna."

Also included in Grow will be IronSource, which Unity acquired last year. The company told shareholders the integration of IronSource is "progressing as planned."

Visoso added that Unity is taking other measures to improve profitability, such as last month's announcement it would be eliminating up to 300 roles at the company. This followed another 225 layoffs in June 2022.

The CFO said Unity has also being "very selective in any future new hires."

Unity has yet to post a profitable quarter since its founding in 2004. When last we spoke to CEO John Riccitiello, he said that while the business could have made some changes to ensure profitability, it "wouldn't be serving the industry in the ways [it does] now."

"My sense is if the game industry participants could want for anything, it's that we would continue to invest ahead of our revenue growth because that benefits the game industry," Riccitiello told us back in October.

"And we have done that for many years, although we are coming to a point where we're getting big enough where the revenue growth is such that it offsets the R&D and we can get to breakeven and profitability."

The CEO also said the company would post profits in 2023, possibly even sooner.

In its latest results, Unity reported that in addition to record revenues for the full year, its Q4 revenues exceeded expectations.

The letter to shareholders described 2022 as a "highly transformational year for the company."

Looking ahead, the company expects full-year revenue in 2023 to reach between $2.05 and $2.2 billion, up between 47% and 58% year-on-year. The company said the wider range given was due to "market uncertainty."

First quarter revenue is expected to come in at between $470 million and $480 million, up 47% to 50% year-on-year.

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