Unity Software to buy Peter Jackson’s Weta Digital for $1.6 billion; stock drops

Unity Software Inc. shares fell in the extended session Tuesday after the gaming-engine company’s announcement of a huge acquisition overshadowed quarterly results that topped Wall Street estimates.

shares dropped 6% after hours, following a 5.2% rise in the regular session to close at $171.63. Unity’s stock has more than tripled in price since the company priced its IPO at $52 a share in September 2020.

Unity said it plans to acquire the tools and technology of visual-effects company Weta Digital for $1.63 billion in cash and stock, while reporting $755.4 million in cash and cash equivalents on hand at the end of the quarter. The New Zealand-based company, chaired and co-founded by Peter Jackson, has provided visual effects to such films as “Lord of the Rings,” which Jackson directed, and “Avatar.” Unity expects the acquisition to close in the fourth quarter.

Last quarter, the company announced plans to acquire remote-desktop and streaming-technology company Parsec for about $320 million in cash.

Unity, which competes with Epic Games Inc.’s Unreal Engine, reported a third-quarter loss of $115.1 million, or 41 cents a share, compared with a loss of $144.5 million, or 97 cents a share, in the year-ago period. The adjusted loss, which excludes stock-based compensation expenses and other items, was 6 cents a share, compared with a loss of 9 cents a share in the year-ago period.

Revenue rose to $286.3 million from $200.8 million in the year-ago quarter.

Analysts surveyed by FactSet had forecast a loss of 7 cents a share on revenue of $266.5 million, based on Unity’s forecast of $260 million to $265 million in revenue.

“Unity’s strong performance this quarter was driven by innovation in data science, vertical growth and making significant strides in bringing RT3D technologies and tools to as many creators and artists as possible,” Unity Chief Executive John Riccitiello said in a statement.

Unity forecast fourth-quarter revenue of $285 million to $290 million, and raised its revenue outlook again to between $1.08 billion and $1.09 billion for the year, compared with a previous forecast of $1.05 billion and $1.06 billion for the year.

Analysts had estimated a loss of 5 cents a share on revenue of $287.7 million for the fourth quarter, and a loss of 25 cents a share on revenue of $1.06 billion for the year.

“We delivered another strong quarter in Q3 2021 with $286 million in revenue, continuing to add new customers and expanding our business within existing customers,” said Luis Visoso, Unity’s chief financial officer, in a statement. “The strong momentum gives us the confidence to raise our revenue growth guidance to 40% for the full year.”

Read: People are still playing a lot of videogames, but how much?

The bulk of major companies in the videogame space — Activision Blizzard Inc. 
 Take-Two Interactive Software Inc. 
 Electronic Arts Inc. 
 Zynga Inc. 
Playtika Holding Corp. 
and Roblox Corp.
— have already reported quarterly results. App-monetization company AppLovin Corp.  
 is scheduled to report Thursday.