Unity Software $U ( ▼ 24.78% ) shares are getting crushed after the company issued first quarter guidance that fell short of Wall Street expectations. The outlook overshadowed otherwise solid fourth quarter results and reignited worries about how well Unity is keeping pace in an AI driven industry shift.
Investors are now questioning both sides of Unity’s business, its game engine and its ad tech platform.
Guidance Disappoints Across the Board
Unity $U expects Q1 revenue between $480 million and $490 million, below analyst estimates of $494 million. Adjusted EBITDA guidance of $105 million to $110 million also missed expectations.
Analysts say the forecast points to a slower than expected ramp in Unity’s AI powered ad tech tool, Vector. At the same time, adoption of Unity 6 subscriptions appears to be growing more slowly than hoped, limiting top line momentum.
AI Competition Intensifies
Unity $U was already under pressure after Google $GOOGL ( ▼ 2.38% ) unveiled Project Genie, an AI system capable of recreating simplified versions of popular games. That raised fears about how AI tools could lower barriers to game development and chip away at Unity’s core engine business.
On the advertising side, Unity and rival AppLovin $APP are facing concerns that AI driven startups could disrupt traditional ad tech models.
Two Businesses, One Big Challenge
With both its game development platform and its ad network facing AI related competition, Unity $U is in a tough transition phase. Its own AI initiatives are meant to help it stay competitive, but the latest guidance suggests those efforts are not yet delivering the growth investors were hoping for.
For now, the market is signaling that patience is wearing thin as Unity works to prove it can turn AI from a threat into a tailwind.