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Unity Software Inc. (U)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 revenue of $441M and adjusted EPS of $0.18 both exceeded guidance and beat Street consensus; adjusted EBITDA of $90M (21% margin) also topped guidance, driven by Unity Ad Network strength and cost discipline . Revenue consensus was $426.7M and EPS consensus was $0.148; both were beats*.
  • Grow Solutions revenue was $287M (-4% YoY), but Unity Ad Network grew 15% QoQ and now represents 49% of Grow; Create Solutions revenue was $154M (+2% YoY), aided by ~$12M term license . Management called Q2 an “inflection point” tied to AI platform Vector .
  • Q3 2025 guidance: revenue $440–$450M and adjusted EBITDA $90–$95M; Grow expected to grow mid‑single digits sequentially, Create to decline slightly due to a large Q2 deal timing .
  • Operational KPIs improved: free cash flow hit a record $127M and operating cash flow was $133M; China revenue rose ~$20M sequentially, reflecting Create and Grow strength .

Values retrieved from S&P Global: revenue and EPS consensus means and estimate counts.*

What Went Well and What Went Wrong

What Went Well

  • “Results once again exceeded expectations, substantially beating the high-end of our guidance for both revenue and Adjusted EBITDA.” CEO highlighted Vector and Ad Network performance as catalysts .
  • Unity Ad Network grew 15% QoQ in Q2 and is ~49% of Grow; management expects continued double‑digit sequential growth in Q3 inside the Ad Network .
  • Create: double-digit subscription growth and momentum in Unity 6 adoption; 6.6M Unity 6 downloads, up 50% QoQ, plus new partnerships with Tencent, Scopely, Nintendo, BMW, and Mercedes .

What Went Wrong

  • Grow Solutions revenue fell 4% YoY due to declines in select Ads products outside Unity Ad Network during Vector’s rollout, tempering overall segment growth .
  • Adjusted EBITDA ($90M) and adjusted EPS ($0.18) declined YoY vs Q2 2024 ($113M; $0.22), reflecting the portfolio reset and reduced contributions from non‑strategic items .
  • Create revenue growth included ~$12M of non‑recurring term license; management guided Create down slightly QoQ in Q3 due to the large Q2 customer win timing .

Financial Results

Consolidated performance vs prior quarters (GAAP and non-GAAP)

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$457.1 $435.0 $440.9
GAAP Net Loss ($USD Millions)$(122.5) $(77.9) $(107.4)
GAAP EPS (Basic & Diluted)$(0.30) $(0.19) $(0.26)
Adjusted EBITDA ($USD Millions)$106.1 $83.9 $90.5
Adjusted EPS ($USD)N/A$0.24 $0.18
GAAP Gross Margin (%)75% 74% 74%
Adjusted Gross Margin (%)83% 82% 83%
Adjusted EBITDA Margin (%)23% 19% 21%
GAAP Net Loss Margin (%)(27)% (18)% (24)%

Segment revenue breakdown

Segment Revenue ($USD Millions)Q4 2024Q1 2025Q2 2025
Create Solutions$152 $150 $154
Grow Solutions$305 $285 $287
Create YoY change-47% -8% +2%
Grow YoY change-5% -4% -4%

KPIs and cash metrics

KPIQ4 2024Q1 2025Q2 2025
Net Cash Provided by Operating Activities ($USD Millions)$112.2 $13.0 $133.1
Free Cash Flow ($USD Millions)$105.8 $7.3 $126.7
Unity Ad Network Share of Grow (%)N/AN/A~49%
Unity Ad Network QoQ Revenue Growth (%)N/AN/A15%
China Sequential Revenue Increase ($USD Millions)N/AN/A~$20 increase

Results vs Street consensus and estimate counts (S&P Global)

PeriodRevenue Actual ($MM)Revenue Consensus Mean ($MM)Beat/MissAdjusted EPS Actual ($)Primary EPS Consensus Mean ($)Beat/MissRev Est. CountEPS Est. Count
Q1 2025$435.0 $416.6*Beat$0.24 $0.108*Beat20*10*
Q2 2025$440.9 $426.7*Beat$0.18 $0.148*Beat19*9*

Values retrieved from S&P Global.*

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ2 2025$415–$425M (issued 5/7) Actual: $440.9M Beat high-end
Adjusted EBITDAQ2 2025$70–$75M (issued 5/7) Actual: $90.5M Beat high-end
RevenueQ3 2025—$440–$450M New guide
Adjusted EBITDAQ3 2025—$90–$95M New guide
Grow SegmentQ3 2025—Mid-single digit QoQ growth New guide
Create SegmentQ3 2025—Slight QoQ decline due to large Q2 deal New guide

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024 and Q1 2025)Current Period (Q2 2025)Trend
AI/Vector performanceVector rebuild/launch plans; expected rollout impact 15% QoQ Ad Network growth; double‑digit sequential growth outlook; cannibalization minimal (<10%) Accelerating
Create platform & Unity 6Unity 6 launch; pricing reset aiding subscriptions 6.6M downloads (+50% QoQ); double‑digit subscription growth Strengthening
Regional (China)Ongoing restrictions cited as risk ~$20M sequential increase in China across Create and Grow Improving
PartnershipsStrategic focus (platform/data) Multi‑year Tencent, Scopely; Nintendo Switch 2 optimization; BMW/Mercedes integrations Broadening
Ads product mix outside UANAds improvements in pipeline Stabilization outside UAN; Vector capabilities to extend modularly Stabilizing
Cost discipline & marginsCost control; margin expansion target Adjusted gross margin 83%; operating leverage noted Expanding

Management Commentary

  • “We believe the second quarter of 2025 will be remembered as an inflection point… markedly better performance.”
  • “Vector led performance inside the Unity Ad Network sparked 15% sequential revenue growth in the second quarter… we now believe … should drive mid single digit sequential growth … in the third quarter.”
  • “The beta feedback … Unity AI in 6.2 … has been both positive and extraordinarily helpful… we’ll substantially ramp our ambitions for the role AI will play in the core Unity content creation experience.”
  • “Our business in China was up about $20,000,000 sequentially… broad based growth in China across both platform and advertising.”
  • CFO: “Adjusted EBITDA exceeded the high end of our guidance driven by continued operating leverage … tight controls around headcount costs and cloud spend.”

Q&A Highlights

  • Vector scope and scalability: Management sees continued model lifts with modular deployment across ad products; acknowledges early stage with ongoing customer‑specific optimization .
  • Cannibalization concerns: Unity estimates cannibalization of non‑Vector ad products at <10%; growth driven by higher advertiser returns, not share shifts .
  • Segment mix and guidance: Unity Ad Network ~49% of Grow; double‑digit sequential growth implied for UAN given mid‑single digit total Grow guide and stabilization elsewhere .
  • Create revenue timing: ~$12M upfront term license in Q2; Create to decline slightly QoQ in Q3 due to deal timing but strategic revenue trends remain positive .
  • China and partnerships: Sequential strength in China and deepening partnerships (Tencent, Scopely, Nintendo) to drive both Create and Grow synergies .

Estimates Context

  • Q2 2025: Revenue $440.9M vs $426.7M consensus; adjusted EPS $0.18 vs $0.148 consensus — both beats*. Q1 2025: Revenue $435.0M vs $416.6M consensus; adjusted EPS $0.24 vs $0.108 consensus — both beats*. Values retrieved from S&P Global.*
  • Q3 2025: Guidance $440–$450M revenue and $90–$95M adjusted EBITDA broadly aligns with consensus revenue ~$453.1M and EPS ~$0.167*. Given Ad Network momentum and stabilization elsewhere, Street estimates may drift higher if execution sustains*. Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Vector is an emerging growth engine: Unity Ad Network’s 15% QoQ growth and rising mix to ~49% of Grow suggest durable sequential tailwinds as AI performance compounds .
  • Multiple beats with margin discipline: Revenue, adjusted EPS, and adjusted EBITDA beat guidance and Street, while adjusted gross margin held at 83% — supporting operating leverage .
  • Create strength is increasingly subscription-led: Double‑digit subscription growth and Unity 6 adoption offset non‑recurring elements; Q3 Create dip looks timing‑related rather than structural .
  • China reacceleration is notable: ~$20M sequential uplift broad‑based across segments, adding a regional catalyst alongside partnerships (Tencent, Scopely, Nintendo) .
  • Watch the Vector rollout breadth: Extension of Vector’s modular capabilities into other ad products is a key lever for broad‑based Grow stabilization and reacceleration .
  • Cash generation improved materially: Record FCF ($127M) and $133M CFO provide flexibility for investment while supporting deleveraging and capital structure health .
  • Near-term trading lens: Focus on Q3 sequential Grow performance and Create timing impact versus guide; sustained Ad Network double‑digit QoQ growth would be a positive estimate revision catalyst .

Other Q2 2025 Press Releases

  • Unity made Ad Quality tool free (standalone SDK) to improve in‑game ad experience and retention; roadmap includes AI‑powered tagging and universal creative ID .
  • Xsolla announced a new SDK for Unity enabling direct‑to‑consumer monetization across platforms, broadening Create ecosystem monetization tools .