Company Performance - Unity Software Inc. reported a quarterly loss of $0.19 per share, which was better than the Zacks Consensus Estimate of a loss of $0.38, representing an earnings surprise of 50% [1] - The company posted revenues of $435 million for the quarter ended March 2025, surpassing the Zacks Consensus Estimate by 5.60%, although this is a decrease from year-ago revenues of $460.38 million [2] - Over the last four quarters, Unity has consistently surpassed consensus EPS estimates and revenue estimates [2] Stock Outlook - Unity Software shares have declined approximately 5.1% since the beginning of the year, compared to a decline of 4.7% for the S&P 500 [3] - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters [4] - The current consensus EPS estimate for the next quarter is -$0.29 on revenues of $426.57 million, and for the current fiscal year, it is -$1.10 on revenues of $1.77 billion [7] Industry Context - The Internet - Software industry, to which Unity belongs, is currently ranked in the top 37% of over 250 Zacks industries, indicating a favorable outlook [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact Unity's stock performance [5][6]

Financial Data and Key Metrics Changes - The company exceeded the high end of its revenue guidance by $20 million, with adjusted EBITDA coming in $19 million above guidance [14][15] - Adjusted EBITDA for the quarter was $84 million, with 19% margins, reflecting a 200 basis point year-over-year expansion [15][16] - Free cash flow improved by $22 million year-over-year to $7 million, despite the first quarter traditionally being modest for cash flow [16][17] Business Line Data and Key Metrics Changes - In the Grow segment, revenue was $285 million, down 4% year-over-year, partially driven by the rollout of Unity Vector [14][15] - The Create segment reported revenue of $150 million, down 8% year-over-year, due to a transition away from low-margin professional services [15] - Subscription revenues in the Create segment grew double digits year-over-year, with nearly 80% of Create revenue now coming from high-margin subscriptions [15][10] Market Data and Key Metrics Changes - The Unity ad network migration to the new AI platform, Unity Vector, was completed ahead of schedule, leading to a 15-20% lift in installs and in-app purchase values on iOS [6][7] - The company is optimistic about the future potential of AR and VR gaming, with predictions of 216 million players worldwide by 2025 [11] Company Strategy and Development Direction - The company is focused on building a culture of execution and discipline, reestablishing trust with customers, and accelerating product innovation to drive growth [6][10] - Unity aims to modernize its advertising business and create sustainable revenue growth over the long term, with a commitment to investing in high-performing products [8][9] - The company is also expanding its platform beyond gaming into other industries, which has become the fastest-growing part of its subscription business [12][13] Management's Comments on Operating Environment and Future Outlook - Management has not seen any noticeable impact from macroeconomic factors on business performance thus far, noting that gaming is historically insulated from economic downturns [40][41] - The company remains optimistic about the performance of Unity Vector and expects it to drive revenue growth in the Grow segment, despite some declines in legacy ad products [18][19] Other Important Information - The company has a cash balance of $1.5 billion and debt of $2.2 billion, with a recent convertible offering well-received by the market [17][18] - The company is focused on minimizing shareholder dilution and stock compensation expenses, which decreased by nearly $45 million year-over-year [16][17] Q&A Session Summary Question: Can you provide more detail on the Vector rollout and customer response? - Management noted that the performance of Vector is exceeding expectations, leading to increased spending from advertisers as they see better returns [25][28] Question: Is subscription revenue growth driven by price increases or new customer growth? - The growth is attributed to both core business growth and the impact of previous price increases, with significant adoption of Unity 6 contributing to this [30][31] Question: What is the trajectory of improvements expected for Vector in the back half of the year? - Management indicated that improvements will be iterative, with measurable increases already seen, and they are optimistic about future performance [34][36] Question: Have macroeconomic factors impacted the business? - Management has not observed any significant impact from macroeconomic conditions, as gaming tends to be resilient during downturns [40][41] Question: What is the current performance of Vector compared to previous ad networks? - The performance is better than expected, with significant improvements in return on ad spend (ROAS) already being observed [116][119]

Financial Data and Key Metrics Changes - Unity exceeded the high end of its revenue guidance by $20 million, with adjusted EBITDA coming in $19 million above guidance [13][18] - Adjusted EBITDA for the quarter was $84 million with 19% margins, representing a 200 basis points year-over-year expansion [14][15] - Free cash flow improved by $22 million year-over-year to $7 million [15] - Cash at the end of the quarter was $1.5 billion, and debt was $2.2 billion [16] Business Line Data and Key Metrics Changes - In the Grow segment, revenue was $285 million, down 4% year-over-year, partially driven by the rollout of Unity Vector [13][14] - In the Create segment, revenue was $150 million, down 8% year-over-year, due to the transition away from low-margin professional services [13][14] - Subscription revenues in the Create segment grew double digits year-over-year, with nearly 80% of Create revenue now coming from high-margin subscriptions [14][9] Market Data and Key Metrics Changes - Unity Vector is expected to provide a 15-20% lift in installs and in-app purchase value compared to the old model, particularly noted in iOS [5][6] - The Unity platform is seeing strong demand across various industries, with nine consecutive quarters of sequential revenue growth [11] Company Strategy and Development Direction - Unity is focused on creating sustainable revenue growth by modernizing its advertising business and leveraging data from the Unity ecosystem [4][6] - The company aims to capitalize on the growing AR and VR gaming market, with predictions of reaching 216 million players worldwide by 2025 [10] - Unity is committed to enhancing its product offerings and maintaining a competitive edge in the gaming and non-gaming sectors [12] Management's Comments on Operating Environment and Future Outlook - Management has not observed any significant impact from macroeconomic factors on business performance thus far [40] - The company remains optimistic about the future of its Grow business, with expectations of revenue growth driven by improved performance from Unity Vector [18][19] - Management is closely monitoring the economic environment while maintaining a focus on driving returns for shareholders [41] Other Important Information - Unity has completed the migration of its ad network to the new AI platform, Unity Vector, ahead of schedule [4][5] - The company is seeing strong adoption of Unity 6, with over 4.4 million downloads and 43% of active users having upgraded [8][9] Q&A Session Summary Question: Can you provide more details on the Vector rollout and customer response? - Management noted that the performance of Vector is exceeding expectations, leading to increased spending from advertisers as they see better returns [26][28] Question: What is driving the strong growth in subscription revenue? - The growth is attributed to both new customer acquisitions and the impact of previous price increases, with expectations for continued double-digit growth [30][100] Question: How is the transition from legacy models to Vector progressing? - The transition is complete, and the company expects to see cost reductions as it no longer runs the two models in parallel [66][67] Question: What is the expected impact of nonstrategic revenue on future guidance? - Nonstrategic revenue is expected to decline, with approximately $17 million recorded in Q1 and a forecast of $30 million for the full year [92][93] Question: How does Unity plan to leverage data insights across its platform? - The company aims to provide valuable insights into consumer behavior to enhance both advertising and game development, with a focus on optimizing user acquisition [75][76]

Revenue Performance - Revenue for Q1 2025 was $435 million, a decrease of 6% year-over-year from $460 million in Q1 2024[4] - Create Solutions revenue was $150 million, down 8% year-over-year, while Grow Solutions revenue was $285 million, down 4% year-over-year[4][5] - Revenue for Q1 2025 was $435 million, a decrease of 5.5% compared to $460.38 million in Q1 2024[29] Net Loss and Earnings - Net loss for the quarter was $78 million, significantly improved from a net loss of $291 million in Q1 2024, resulting in a net loss margin of (18)% compared to (63)%[7][8] - Basic and diluted net loss per share was $0.19, compared to $0.75 for the same period in 2024[6][8] - GAAP net loss for Q1 2025 was $77.91 million, significantly improved from a net loss of $291.48 million in Q1 2024[29] EBITDA and Profit Margins - Adjusted EBITDA for Q1 2025 was $84 million, with a margin of 19%, up from $79 million and a margin of 17% in Q1 2024[10] - Adjusted EBITDA for Q1 2025 was $83.94 million, representing an increase of 6.1% from $78.52 million in Q1 2024[29] - GAAP gross profit for Q1 2025 was $321.04 million, compared to $315.99 million in Q1 2024, resulting in a GAAP gross margin of 74%[29] - Adjusted gross profit for Q1 2025 was $359.10 million, slightly down from $376.58 million in Q1 2024, maintaining an adjusted gross margin of 82%[29] Cash Flow and Operating Activities - Net cash provided by operating activities was $13 million, a turnaround from net cash used of $7 million in Q1 2024[9][10] - Free cash flow for the quarter was $7 million, compared to negative $15 million in Q1 2024[10] - Free cash flow for Q1 2025 was $7.31 million, a recovery from a negative free cash flow of $14.56 million in Q1 2024[33] - As of March 31, 2025, cash and cash equivalents totaled $1,552 million, an increase of $24 million from $1,528 million at the end of 2024[12] Guidance and Future Outlook - Q2 2025 revenue guidance is projected to be between $415 million and $425 million, with adjusted EBITDA expected to be between $70 million and $75 million[15] - Unity expects to enhance its platform and accelerate product innovation, with a focus on opportunities in the AR and VR gaming market[34] Expenses - Research and development expenses for Q1 2025 were $220.63 million, down from $282.73 million in Q1 2024, representing 51% of revenue[31] - Sales and marketing expenses for Q1 2025 were $162.01 million, reduced from $230.63 million in Q1 2024, accounting for 37% of revenue[31] Market Positioning - The early success of Unity Vector and strong demand for Unity 6 highlight the company's strategic positioning in the game development market[2]

Core Insights - The article emphasizes the importance of earnings acceleration in driving stock prices higher, indicating that stocks often experience an increase in earnings before their prices rise [1][3]. Earnings Acceleration Definition - Earnings acceleration refers to the incremental growth in a company's earnings per share (EPS), specifically when the quarter-over-quarter earnings growth rate increases over time [2]. Importance of Earnings Acceleration - Unlike earnings growth, which may already be reflected in stock prices, earnings acceleration can identify stocks that have not yet attracted investor attention, leading to potential price rallies [3]. Earnings Growth Trends - An increasing percentage of earnings growth suggests a fundamentally sound company, while a stable or decreasing percentage may indicate consolidation or a slowdown, potentially dragging prices down [4]. Screening Parameters - The article outlines specific screening parameters to identify stocks with earnings acceleration, including: - Last two quarter-over-quarter EPS growth rates exceeding previous periods [5]. - Projected EPS growth rates for the upcoming quarter expected to exceed prior periods [6][7]. Top Stocks Identified - The screening process narrowed down to four stocks, with three highlighted: - **Lam Research Corporation (LRCX)**: Expected earnings growth rate of 32.8% for the current year, Zacks Rank 2 (Buy) [8]. - **Unity Software Inc. (U)**: Anticipated earnings growth rate of 34.5% for the current year, Zacks Rank 1 (Strong Buy) [10]. - **Gulfport Energy Corporation (GPOR)**: Expected earnings growth rate of 85.3% for the current year, Zacks Rank 1 (Strong Buy) [11].

Group 1 - Unity Software Inc. has reached a key level of support and recently broke out above the 50-day moving average, indicating a short-term bullish trend [1] - The stock has moved 26.7% higher over the last four weeks and is currently rated as a Zacks Rank 1 (Strong Buy) [2] - Positive earnings estimate revisions have occurred, with one higher estimate compared to none lower for the current fiscal year, and the consensus estimate has also increased [2][3] Group 2 - The combination of positive technical factors and earnings estimate revisions suggests that investors may want to monitor Unity Software Inc. for potential gains in the near future [3]

Market Overview - The S&P 500 index is down approximately 9.5% from its high, while the Nasdaq Composite index has fallen 13.5% [1] - The stock market has experienced significant volatility, which may present investment opportunities in companies with strong long-term potential [2] Unity Software - Unity Software provides tools for developers to create video games and digital content, along with digital advertising tools [3] - Despite being a leader in the game-engine services space, Unity's stock has underperformed, down about 89% from its all-time high shortly after its IPO in 2020 [4][5] - In Q4, Unity's sales declined 25% year over year to approximately $457 million, with a net loss of $127 million [6] - However, revenue from Unity's core strategic portfolio increased 4% year over year to $442 million, indicating potential for recovery [7] - The company is undergoing restructuring and strategic shifts, including changes to its digital advertising network and the rollout of a new AI platform [7] - Unity's shares are considered a worthwhile buy ahead of its first-quarter earnings release on May 7 [8] Kenvue - Kenvue, a spinoff from Johnson & Johnson, has not performed as expected, down more than 15% from its all-time high [9] - The company reported 1.9% organic sales growth in its self-care segment and 4.1% growth in essential health, but a decline of 1.9% in the skin health and beauty segment [11] - Kenvue increased its marketing budget to 10.6% of sales in 2024, but recovery is slower than anticipated [12] - There are signs of improvement in the skin health and beauty segment, with organic sales rising 2.6% in Q4 2024 [13] - Kenvue trades at just below 21 times estimated free cash flow for 2025, close to fair value for a mature consumer staple [14] - The stock offers a 3.6% dividend yield, making it attractive for value investors despite low growth prospects [14]

Michael Wiggins De Oliveira is an inflection investor. This means buying into cheap companies at the moment when their narrative is changing and the business is on a path toward becoming significantly more profitable over the next year.With a focus on tech and “the Great Energy Transition (including uranium)”, Michael runs a concentrated portfolio with approximately 15 to 20 stocks and an average holding period of 18 months. Through his 10+ years analyzing countless companies, Michael has accumulated outsta ...

Investment Rating - The report maintains an "Attractive" industry view for North America [8]. Core Insights - The report highlights a framework of "visibility to free cash flow (FCF) vs valuation" to analyze potential durable outperformance in the current macroeconomic environment, with META, GOOGL, and UBER identified as top performers [1][10]. - The macroeconomic outlook includes muted GDP growth expectations of 0.6% and 0.5% for 2025 and 2026, respectively, alongside firming inflation and a steady Federal Reserve [2]. - The report emphasizes the interconnectedness of e-commerce and digital advertising, noting that e-commerce drives online advertising and vice versa, with META positioned as the most resilient in the face of tariff impacts [4][5]. Summary by Sections Macro Factors - The focus is on three macro factors: business confidence, hiring trends, and consumer spending health, which are critical for driving investment and hiring decisions [2]. Tariff Exposure - The report details the estimated exposure of U.S. imports from China across various e-commerce companies, with AMZN and RVLV having around 18% exposure, while PTON and FIGS have less than 2% [3][19]. - It discusses the potential ripple effects of China tariffs on digital advertising, particularly affecting smaller businesses and 1P/3P sellers [4]. Visibility vs Valuation Framework - The report employs a quadrant analysis to assess visibility and valuation support, indicating that companies with higher visibility on earnings and cash flow are likely to receive more investor capital first [10][11]. - META and GOOGL are highlighted for their high margin and reasonable valuations, with META favored due to its audience engagement factors and innovations [13]. Company-Specific Insights - CHWY is noted for its high resilience and FCF visibility due to its autoship model, while UBER is recognized for its smaller standard deviation of FCF in 2026 [14][15]. - Companies like BKNG and DASH are also mentioned for their visibility and execution capabilities, while FIGS and PTON face more risks due to their discretionary nature and tariff impacts [16][17]. Price Target Changes - The report outlines price target adjustments for several companies, including a reduction for GOOGL from $210 to $185 and for META from $660 to $615, reflecting lowered revenue estimates due to macroeconomic pressures [39][40].

Industry Overview - The Internet Software and Services sector is experiencing growth due to increased IT spending on hybrid operating environments and the high penetration of mobile devices, prompting businesses to invest in web-based infrastructure, applications, and security software [1][3] - The Internet Software industry is ranked in the top 37% of Zacks Industry Rank, indicating an expectation to outperform the market in the next three to six months [2] Growth Drivers - The industry is benefiting from the global digital transformation and the rapid adoption of Software as a Service (SaaS), which provides flexible and cost-effective application delivery [3] - There is a growing demand for web-based cybersecurity software due to the need to secure cloud platforms against cyber-attacks, leading to increased demand for performance management monitoring tools [5] Company Highlights Affirm Holdings Inc. (AFRM) - Affirm is projected to achieve revenues between $3.13 billion and $3.19 billion in fiscal 2025, driven by growing active merchant numbers and partnerships with companies like Apple Pay [11] - The expected revenue and earnings growth rates for Affirm are 36.9% and 96.4%, respectively, for the current year, with a short-term price target indicating a potential upside of 112.4% from the last closing price of $40.49 [12][13] Five9 Inc. (FIVN) - Five9 offers intelligent cloud software for contact centers, benefiting from the adoption of AI tools, with a focus on personalized AI agents [14][16] - The expected revenue and earnings growth rates for Five9 are 9.8% and 5.7%, respectively, with a short-term price target suggesting a maximum upside of 190.4% from the last closing price of $23.07 [17] Unity Software Inc. (U) - Unity provides a platform for creating interactive, real-time 3D content across various devices, catering to developers and content creators [18][19] - The expected revenue and earnings growth rates for Unity are -2% and 31%, respectively, with a short-term price target indicating a potential upside of 82% from the last closing price of $19.23 [20][21] Olo Inc. (OLO) - Olo operates an open SaaS platform for restaurants, facilitating digital ordering and payment solutions, enhancing guest experiences [22][23] - The expected revenue and earnings growth rates for Olo are 17.5% and 40.9%, respectively, with a short-term price target suggesting a maximum upside of 62.1% from the last closing price of $6.17 [25] StoneCo Ltd. (STNE) - StoneCo provides financial technology solutions for electronic commerce in Brazil, distributing through proprietary Stone Hubs [26] - The expected revenue and earnings growth rates for StoneCo are 4.1% and -6.7%, respectively, with a short-term price target indicating a potential upside of 90.8% from the last closing price of $11.53 [27][28]