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Unity Software Inc. (U)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 revenue and adjusted EPS beat consensus: revenue $470.6M vs $453.1M estimate (+3.9%), adjusted EPS $0.20 vs $0.17 estimate; strength driven by Unity Vector AI and broad-based Grow performance *. Values retrieved from S&P Global.
  • Adjusted EBITDA $109.5M (23% margin) and free cash flow $151.3M, each up year over year; GAAP net loss was $(126.8)M with a (27)% margin .
  • Guidance: Q4 2025 revenue $480–$490M and adjusted EBITDA $110–$115M; Grow expected mid-single digit sequential growth, Create high-single digit YoY growth ex non-strategic revenue .
  • Strategic catalysts: Vector AI delivered 11% QoQ lift in Grow in Q3; new native cross‑platform commerce (Stripe partnership) and day‑one Android XR support broaden monetization and platform reach .

What Went Well and What Went Wrong

What Went Well

  • Vector AI accelerated Grow: “we added $30 million of high margin incremental Grow revenue on a sequential basis…driven by the exceptional performance of Vector” and Grow revenue rose to $318M (+11% QoQ, +6% YoY) .
  • Create subscription strength and pricing: Create revenue $152M (+3% YoY) with “ARPU improvements from ongoing price increases and continued momentum in China” .
  • Cash generation inflecting: record free cash flow $151.3M and net cash from operations $155.4M; management expects high conversion of adjusted EBITDA to FCF to continue .

What Went Wrong

  • GAAP losses persist: Q3 GAAP net loss $(126.8)M and GAAP diluted EPS $(0.30), with net loss margin (27)% despite non‑GAAP improvements .
  • Cost of revenue up with compute: GAAP cost of revenue $120.3M (26% of revenue), reflecting computational intensity; management noted cloud costs are second‑largest and rose alongside Grow scale .
  • Non‑strategic revenue headwinds: Create consumption/pro services remain a drag vs subscription gains; management continues to lap prior non‑strategic items and large Q2 deal (one‑time license) .

Financial Results

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Revenue ($USD Millions)446.517 435.000 440.944 470.615
GAAP Net Loss ($USD Millions)(124.548) (77.907) (107.365) (126.828)
GAAP Net Loss Margin (%)(28)% (18)% (24)% (27)%
GAAP Diluted EPS ($)(0.31) (0.19) (0.26) (0.30)
Adjusted EPS ($)0.19 0.24 0.18 0.20
Adjusted EBITDA ($USD Millions)91.722 83.943 90.497 109.497
Free Cash Flow ($USD Millions)115.207 7.308 126.650 151.291
Net Cash from Operations ($USD Millions)122.358 13.026 133.096 155.398
Gross Margin (GAAP %)75% 74% 74% 74%
Gross Margin (Adjusted %)84% 82% 83% 82%

Segment revenue

SegmentQ3 2024Q1 2025Q2 2025Q3 2025
Create Solutions ($USD Millions)147 150 154 152
Grow Solutions ($USD Millions)299 285 287 318

Liquidity KPIs

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Cash, Cash Equivalents & Restricted Cash ($USD Millions)1,415.968 1,551.634 1,701.507 1,909.088
Total Assets ($USD Millions)—6,645.955 6,716.424 6,783.297
Convertible Notes ($USD Millions)—2,232.143 2,233.255 2,234.307

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)Q4 2025N/A480–490 New
Adjusted EBITDA ($USD Millions)Q4 2025N/A110–115 New
Grow (sequential)Q4 2025N/AMid-single digit QoQ growth New
Create (YoY, ex non-strategic)Q4 2025N/AHigh-single digit YoY New
Qualitative expense itemsQ4 2025—UNITE conference and Salesforce accelerators impact Q4 OpEx Clarified

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2025)Current Period (Q3 2025)Trend
Vector AI performance and scaleQ1: 15–20% lift in installs/IAP on iOS; full migration to Vector; early stage, learning improves models . Q2: Unity Ad Network +15% QoQ; cannibalization minimal (<10%); modular rollout across portfolio Q3: Broad-based gains, +11% QoQ Grow; competitive across platforms; continued model improvements and data ingestion Strong momentum, expanding reach
China momentumQ2: China +$20M QoQ, Create & Grow contributing; Unity uniquely supports Chinese platforms incl. Open Harmony Q3: “Extremely bright spot,” Create pricing + China demand; Chinese publishers leveraging Unity for global UA Sustained strength
Create subscription/pricingQ1: Double-digit subscription growth; price waterfall benefits through 2025 Q3: ARPU improvements from pricing; high-single digit YoY guidance ex non-strategic Ongoing ARPU uplift
Cross‑platform commerce—Launch of Unity native commerce mgmt; Stripe merchant-of-record; aim to recapture margin and fuel UA spend New monetization vector
Android XR ecosystemQ1: Unity 6.1 day‑one support for Nintendo Switch 2 & XR; platform reach expansion Q3: Day‑one Android XR support; production‑verified with Google/Samsung; new XR titles launched Platform expansion
Programmatic/brands—First foray via Audience Hub; campaigns show engagement lifts; large TAM shift to CTV/retail media Early stage, optionality
Cloud/compute costsQ1: Parallel models temporarily lifted cloud costs; expected normalization later Q3: Cloud = 2nd largest cost; improving efficiency and unit costs over time Manageable with efficiency

Management Commentary

  • “We added $30 million of high margin incremental Grow revenue on a sequential basis…revenue upside compared to our guidance was driven by the exceptional performance of Vector” — CFO .
  • “After backing out non‑strategic revenue, our Create subscription software business increased 13% year over year…ARPU improvements from ongoing price increases and continued momentum in China” — CFO .
  • “Vector will keep learning…enhanced by highly differentiated behavioral data available through our runtime, which should begin having a financial impact in 2026” — CEO .
  • “We launched native, cross‑platform commerce…developers manage their entire global commerce and catalog…with Stripe” — Company press release .
  • “Cloud costs…are the second largest cost…we are able to make that consumption of compute much more efficient…unit prices reducing over time” — CFO .

Q&A Highlights

  • Grow guide and seasonality: Management guided mid‑single digit QoQ Grow despite +11% QoQ in Q3, citing run‑rate, seasonality, and ongoing model improvements; reiterated long‑term Vector momentum .
  • Vector breadth and competitiveness: “Vector is really competitive across all platforms” and bidding broadly across mediation solutions .
  • China geography mix: Revenue growth broadly across Create and Grow; Chinese publishers using Unity for global UA; China improved from ~15% to ~20% of revenue YoY per management commentary .
  • Commerce economics: Developers recapture margins with cross‑platform payments, redeploying into ROAS‑positive UA; Unity collects modest merchant fee; bigger aim is ecosystem value and future commerce products .
  • Compute scaling: Cloud costs can rise with scale but efficiency gains and commoditization of compute layers expected to lower cost to serve over time .

Estimates Context

MetricConsensus EstimateActualSurprise
Revenue ($USD Millions)453.062*470.615 +17.553 (+3.9%)*
Primary EPS (Adjusted) ($)0.167*0.20 +0.033*
  • Q4 2025 consensus revenue $489.082M* vs company guidance $480–$490M (midpoint $485M), implying guidance ranges around Street levels *.
  • Consensus target price $43.04*.

Values retrieved from S&P Global.

Key Takeaways for Investors

  • Vector AI is the principal growth engine: +11% QoQ Grow and broad‑based performance suggest continued share gains and advertiser spend scaling into Q4 and 2026 .
  • Create subscription health plus pricing drives stability: YoY Create growth ex non‑strategic and ARPU improvements provide cushion against consumption/professional services headwinds .
  • Cash dynamics improving: record FCF $151.3M and $1.91B cash balance enhance flexibility for product investment and debt management; expect high EBITDA‑to‑FCF conversion to persist .
  • Near‑term margin puts/takes: Q4 includes UNITE conference and sales accelerators; cloud costs scale with Grow but efficiency initiatives should support margin stability .
  • New monetization vectors: native cross‑platform commerce and Audience Hub expand TAM beyond gaming; optionality in programmatic and XR platforms could become incremental growth levers over 2026+ .
  • Guidance aligns with Street: Q4 revenue $480–$490M and adjusted EBITDA $110–$115M bracket consensus, with upside tied to continued Vector momentum and Create subscription durability *.
  • Watch China momentum and data runway: China contribution rising and runtime/data initiatives expected to be financial tailwinds beginning in 2026, reinforcing medium‑term thesis .