U Q2 2025: Vector Ads Up 15% QoQ, Mid-Single-Digit Q3 Outlook
- Unity Vector’s Strong Growth Trajectory: The impressive performance of Unity Vector is evident with 15% sequential growth in Q2 and the potential for double-digit growth in Unity ads, providing a clear path toward revenue acceleration over multiple quarters.
- Scalable, Modular AI Platform with Long-Term Upside: The highly modular nature of Unity Vector enables its application across other ad products, promising ongoing performance improvements and long-term competitive differentiation driven by advanced AI capabilities.
- Strategic Partnerships and Global Expansion: Establishing multiyear deals with leading industry players like Tencent and Scopely alongside robust growth in key markets such as China (up approximately $20 million sequentially) reinforces Unity’s ability to expand its ecosystem and drive consistent revenue gains.
- Reliance on early-stage Vector performance creates uncertainty: Management acknowledged they are only a few weeks into Vector’s rollout – with some customers already hitting a point of diminishing returns – highlighting that scaling the technology and maintaining rapid sequential growth could remain challenging and may not materialize as expected.
- Dependence on future AI-driven improvements introduces near-term risk: The company expects more substantial benefits from its AI and data initiatives only beginning in 2026, suggesting that near-term growth is vulnerable if these future catalysts take longer or deliver less than anticipated.
- Risk of revenue mix disruption and cannibalization concerns: Although management minimizes cannibalization to under 10%, there remains uncertainty over how effectively the Vector system will integrate with and enhance non-Vector ad products, potentially impacting overall revenue stability if shifts between products do not occur as planned.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Total Revenue | Q3 2025 | $415 million to $425 million | $440 million to $450 million | raised |
Adjusted EBITDA | Q3 2025 | $70 million to $75 million | $90 million to $95 million | raised |
Grow Segment Revenue | Q3 2025 | Steady sequential revenues driven by improved performance of Unity Vector, offset by declines in select legacy ad products | Anticipated mid single-digit sequential revenue growth, driven by continued performance in the Unity ad network | raised |
Create Segment Revenue | Q3 2025 | Continued momentum in Subscription business across gaming and industry verticals, with a slight sequential decline due to runoff in nonstrategic revenues | Forecasted a slight sequential decline from Q2 to Q3 due to the impact of a large customer win in Q2; however, excluding this impact, strategic create revenue is expected to be up in the third quarter | no change |
Adjusted Gross Margins | Q3 2025 | no prior guidance | 83% | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Unity Vector Rollout and Performance | Discussed in Q1 2025 with early success, sequential growth and internal revenue mix dynamics ( ); in Q4 2024, emphasized an iterative rollout with performance expectations and caution ( ); Q3 2024 did not provide specific details ( ). | Focused on a significant generational upgrade with 15% sequential revenue growth and early-stage uncertainty, stressing continued investments and optimization ( ). | Consistent focus with evolving emphasis from early successes to measured caution as the platform matures. |
AI and Machine Learning Integration | Highlighted in Q1 2025 for powering Unity Vector with strong investments in ML, infrastructure and long‐term potential ( ); Q4 2024 described integration via Unity Vector for enhanced targeting and scalability ( ); Q3 2024 mentioned ongoing testing of ML models ( ). | Emphasized a modular, advanced AI platform with robust lifts, integration into other products and long-term growth ambitions ( ). | Consistent positive sentiment with continuous investments and integration; remains a key pillar for future growth. |
Strategic Partnerships and Global Expansion | Q4 2024 showcased significant deals with Google, Toyota and Raytheon ( ); Q3 2024 noted partnerships with KLM and Deutsche Bahn ( ); Q1 2025 did not mention this topic ([N/A]). | Spotlight on major partnerships with Tencent, Scopely, and Nintendo, plus strong expansion in key markets like China ( ). | Increased emphasis in the current period compared to its absence in Q1 2025, reinforcing global expansion and strategic growth. |
Transition from Legacy Models to a Unified Platform | Q1 2025 provided detailed discussion on migrating from legacy models to Unity Vector with challenges, dual operations and cost pressures ( ); Q4 2024 also reviewed the iterative migration process and associated disruptions ( ); Q3 2024 did not specifically cover this topic. | No specific mention in Q2 2025. | This topic, which was previously discussed in detail, is no longer mentioned in the current period. |
Revenue Growth, Subscription Dynamics, and Margin Pressure | Addressed in Q1 2025 with revenue beats, subscription growth and margin improvements ( ); in Q4 2024, detailed strong subscription dynamics and margin expansion while noting integration risks ( ); in Q3 2024, performance, subscription revenue and margin figures were discussed ( ). | Strong revenue performance exceeding guidance, robust subscription growth and effective cost management with margin improvements, despite integration risks ( ). | Consistent robust performance with balanced optimism and caution regarding timing and integration risks. |
Non-Gaming Sector Expansion and Industry Diversification | Q1 2025 mentioned expansion into sectors with new customers like Philips, Siemens and Toshiba ( ); Q4 2024 highlighted 50% industry revenue growth and key deals with Toyota and Raytheon ( ); Q3 2024 demonstrated broad-based adoption across automotive, healthcare, aviation and rail ( ). | Emphasized as the fastest-growing subscription business with continued expansion in automotive and healthcare sectors ( ). | Persistent strong growth beyond gaming with consistent diversification across industries. |
Internal Product Cannibalization and Revenue Mix Risks | Q1 2025 discussed internal budget shifts between Unity Vector and legacy networks and acknowledged some revenue mix dynamics ( ); Q4 2024 mentioned consolidation of assets amid migration ( ); Q3 2024 did not address this topic explicitly. | Stated minimal impact with less than 10% cannibalization and reinforced the argument that ad products are complementary ( ). | Ongoing managed risk with consistent reassurance that product overlaps are not significantly disruptive. |
Dependence on Future AI-Driven Improvements and Timing Uncertainties | In Q1 2025, early-stage rollout was paired with caution over timing and gradual enhancements expected later ( ); Q4 2024 stressed iterative improvements with uncertainties tied to migration and scaling ( ); Q3 2024 did not specifically address the timing aspect. | Reiterated early-stage progress with expected significant AI-driven improvements starting in 2026, while cautioning that immediate full benefits are not yet realized ( ). | Consistent long-term optimism coupled with near-term caution regarding the timing of expected enhancements. |
Cloud Cost Pressures and Investment Impacts | Q1 2025 detailed increased cloud costs due to dual operations and heavier AI investments impacting margins ( ); Q4 2024 discussed rising cloud costs with AI training alongside efforts to maintain strong margins ( ); Q3 2024 mentioned additional compute costs for training new AI models ( ). | Balanced narrative of cost efficiencies and margin improvements even as continued investments in AI and infrastructure persist ( ). | Consistent emphasis on balancing higher expenditures with operational efficiencies to support long-term margin expansion. |
Emerging Competitive Threats from Generative AI Startups | Q4 2024 addressed potential disruption from generative AI in asset creation and platform pricing ( ); Q3 2024 also discussed integration of generative AI tools into the ecosystem ( ); Q1 2025 did not mention the topic. | No mention of this topic in the current Q2 2025 period. | Previously raised concerns are now absent, indicating either reduced emphasis or successful integration of generative AI as an opportunity rather than a threat. |
Phasing Out of Unity 6 and Legacy Pricing Adjustments | Q1 2025 discussed transitioning away from legacy models and adjustments to legacy pricing tied to Unity 6 ( ); Q4 2024 highlighted Unity 6’s adoption and gradual rollout of new pricing adjustments ( ); Q3 2024 focused on cancelling the runtime fee and moving to a subscription model associated with Unity 6 ( ). | Not mentioned in Q2 2025. | This previously highlighted subscription strategy is no longer emphasized in the current period, suggesting a shift in focus from legacy pricing adjustments. |
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Vector Performance
Q: What is Vector’s pace and impact?
A: Management noted that Vector delivered 15% sequential growth in Q2 and is expected to drive mid single digit sequential gains in Q3, with its evolving AI capabilities promising further long‐term uplifts in user installs and ad value. -
Cannibalization Impact
Q: Is existing ad spend being cannibalized?
A: They clarified that cannibalization is less than 10%, meaning improvements in Unity’s ad network are incremental rather than detracting from other ad products. -
China Revenue
Q: How did China revenue perform?
A: Management reported a sequential increase of roughly $20M in China, driven by both create and grow segments as the platform expands its footprint in the world’s largest gaming market. -
Ad Network Scalability
Q: Can Unity Vector scale ad spend effectively?
A: Leaders expressed optimism on scalability—while early results are strong, they acknowledge the need for continuous product refinements and tailored customer adjustments. -
Create Segment & Partnerships
Q: Any notable Developments in Create?
A: They pointed to a $12M perpetual deal in Create as a minor, one-time revenue component, alongside robust subscription growth and strategic long-term partnerships with industry leaders. -
Margin and Retention
Q: How are margins and retention trends?
A: The business maintains an 83% adjusted gross margin with improving net revenue retention, underscoring strong operating leverage in both growth and subscription segments. -
Mediation & Data Integration
Q: Is mediation key for ad pricing signals?
A: Management believes their first-party consumer insights reduce reliance on mediation, focusing instead on optimizing direct user acquisition through richer data. -
Operational Roadmap
Q: What are the next steps product-wise?
A: The leadership emphasized a steady, modular rollout of Vector and cross-product AI enhancements, setting the stage for continual, incremental improvements that support long-term growth.
Research analysts covering Unity Software.