To The Moon

Two gaming companies$Unity Software Inc.(U)$ and $Roblox Corporation(RBLX)$ plunged sharply after the Q3 financial earnings, with downward estimate by the market even days before it released.

Unity's performance is somewhat acceptable, but still not match the expectation of investors.

Revenue was 323 million US dollars, and the year-on-year growth rate rose from 8.5% in the previous quarter to double-digit 12.8%, which was the same as market expectations; The adjusted operating loss was $37.44 million, better than the expected loss of $41 million;

However, the overall bill was US $309 million, which was lower than the expected US $313 million, and the number of users was 1,075, up 10% year-on-year, which was lower than the expected 1,127.

The company is dealing with IronSource acquisition that due to next Monday, which means it will be merged with it in the next quarter's financial report.

Therefore, in terms of Q4 performance outlook, revenue is expected to increase by 35-41%. It is estimated that the annual revenue will be between 1.365-1.385 billion US dollars (up 23-25% year-on-year), and the adjusted operating loss will be between 88 million and 98 million US dollars.

12-month trailing net dollar expansion rate came in at to drive success 111%, down from 142% last year, which is regarded as the current decline trend to attract customers.

The Company generates revenue through three sources: Create Solutions, or tools for developing real-time 2D and 3D content; Operate Solutions, or a set of solutions that offer customers the ability to grow their user bases, and to run and monetize their content; and Strategic Partnerships.

In terms of valuation,Unity's current EV/SALES is about 6.28 times, with premium to its peers' median 4.97 times.

RBLX, on the other hand, plunged more than 20% in intraday trading, and its Q3 performance was mixed.

• Revenue was 701 million US dollars, a year-on-year increase of 10% and an increase of 29% in the same period last year, which was far lower than the market expectation of 686.3 million US dollars;
• The profit before interest, tax and amortization was US $50.88 million, a year-on-year decrease of 62.5%, which was also lower than the market expectation of US $59.61 million.
• In terms of operational data, the average daily users (DAU) were 58.8 million, an increase of 24% year-on-year and an increase of 31% in the same period last year, which was higher than the market expectation of 588.67 million;
• User participation time increased by 20% year-on-year to 13.4 billion hours, slightly lower than the market expectation of 13.5 billion hours

Roblox is currently focusing on monetization, and we can see its positive trend in the past few quarters. The company remains committed to a strict capital allocation strategy in the future.

Why has RBLX become so conservative? There are two main reasons

1. The macroeconomic downturn makes the entire game industry suffer

2. The growth of company users is limited. From the outbreak after COVID-19, growth has started to stagnate as the company's core demographic -- between the ages of 5 and 24 -- is already heavily penetrated to the tune of some 30%, "suggesting both user and bookings growth may be challenged moving forward.