Unity Sees Mid-Single-Digit Revenue Growth in Q3 2025 as Vector and Create Gain Momentum

Key Highlights from Unity Software Inc.'s Q2 2025 Earnings Call

During the recent earnings call for Unity Software Inc. (U), CEO Matthew Samuel Bromberg emphasized that the second quarter of 2025 marked a significant turning point for the company. He described it as an inflection point where accelerated product innovation and enhanced customer value combined to drive sustainable growth, particularly through the emergence of Unity Vector. According to Bromberg, Unity Vector has exceeded expectations at this early stage of development.

One of the key points discussed was the impact of Unity Vector on the Unity Ad Network, which saw a 15% sequential revenue growth in Q2. The momentum continued into Q3, with the CEO noting that the company is already working with 85 of the top 100 mobile games globally. This highlights the growing influence of Unity Vector in the gaming industry.

Bromberg also announced the release of Unity 6.2, which introduces a developer data framework. This system includes privacy dashboards that allow developers to manage how data is collected, shared, and used within their applications. This feature is aimed at improving user privacy while maintaining the functionality of interactive applications built using Unity.

Strategic Partnerships and Industry Expansion

The CEO highlighted several major multi-year partnerships, including with Tencent and Scopely, as well as a new collaboration with Nintendo for the Switch 2 launch. These partnerships underscore Unity’s expanding reach across different industries. In addition, the company is making progress in other verticals, such as automotive and healthcare, with collaborations involving BMW, Mercedes-Benz, and Specto Medical.

CFO Jarrod Yahes provided financial insights, stating that revenue exceeded the top end of guidance by $16 million, with adjusted EBITDA coming in $15 million above the top end of guidance. For the second quarter, Grow revenue was $287 million, down 4% year-over-year but up 1% sequentially. Create revenue reached $154 million, showing a 2% increase both year-over-year and sequentially. This growth reflects strength in the subscription business, which delivered double-digit year-over-year growth.

Yahes also noted that adjusted EBITDA for the quarter was $90 million, representing 21% margins. Free cash flow reached $127 million, with cash at the end of the quarter totaling $1.7 billion and convertible debt at $2.2 billion.

Outlook for Q3 2025

Looking ahead, Yahes guided for Q3 2025 revenues between $440 million and $450 million, with adjusted EBITDA expected to range from $90 million to $95 million. In the Grow segment, the company anticipates mid-single-digit sequential revenue growth, driven by continued performance in the Unity Ad Network. Outside of the Unity Ad Network, stability is expected, with revenues remaining steady from Q2 to Q3.

Regarding the Create segment, Yahes noted a slight sequential decline in revenue due to a large customer win in Q2. However, excluding this, strategic Create revenue is expected to grow in the third quarter compared to both Q1 and Q2, with high single-digit year-over-year growth anticipated.

Yahes also mentioned that Unity is beginning to benefit from improved operating leverage, supported by adjusted gross margins of 83%. This indicates a positive trend in cost management and efficiency.

Financial Results and Regional Performance

Unity reported Grow revenue of $287 million and Create revenue of $154 million for Q2 2025. Adjusted EBITDA was $90 million, with a margin of 21%. Free cash flow totaled $127 million. The company also highlighted a $20 million sequential revenue increase in China, attributed to both Create and Grow segments.

Non-strategic Create revenue in Q2 2025 was minimal, and the company expects this to remain the case moving forward. This suggests a focus on strategic growth areas rather than non-core segments.

Q&A Insights and Analyst Questions

During the Q&A session, analysts raised several questions about the scalability of Unity Vector, cannibalization effects, and the methodology behind guidance. Bromberg addressed these concerns, emphasizing that Unity Vector is a highly modular system that can be applied to other ad products. He also noted that the company is still early in the rollout of Vector and is seeing improvements beyond the 15% to 20% lifts seen in installs and user value.

Analysts also asked about the implications of mid-single-digit growth in Grow and whether this indicated slowing gains in Vector. Yahes clarified that even if half the business remains stable, the Unity Ad Network is set for double-digit growth. Additionally, Bromberg confirmed that cannibalization between the Unity Ad Network and ironSource is less than 10%, indicating a healthy competitive landscape.

Sentiment and Market Reaction

Analysts maintained a cautiously optimistic tone, with questions focused on scalability and sustainability. Management remained confident, particularly regarding the potential of Unity Vector and operating leverage. Bromberg described the current period as an inflection point, while Yahes called the growth in China "truly very exciting."

Compared to the previous quarter, the tone remained confident, with more specificity around Vector's rollout and financial impacts. Analysts shifted their focus toward growth sustainability and scalability, reflecting increased expectations for the company.

Risks and Future Considerations

Management acknowledged stabilization in non-Unity Ad Network ad products and indicated ongoing investment in AI and product quality. Yahes noted that the company is appropriately weighting the risk of future opportunities while considering its early position in the journey.

Cannibalization between Unity Ad Network and ironSource was addressed, with management estimating it at less than 10% and emphasizing marketplace competitiveness. Analysts raised concerns about the scalability of Vector-driven gains and the durability of growth, especially in the face of changing customer spending behaviors and product adoption trends.

Final Takeaway

Unity Software Inc. presented Q2 2025 as a transformative quarter, highlighting the momentum of Unity Vector, robust subscription growth in Create, and significant partnerships with Tencent, Scopely, and Nintendo. With guidance projecting mid-single-digit sequential Grow revenue increases and high single-digit year-over-year growth in strategic Create revenue for Q3, the company emphasized broad-based strength, particularly in China. The outlook reflects confidence in the long-term benefits of AI-driven innovation across its product portfolio.