Interactive software platform Unity (NYSE:U) beat Wall Street’s revenue expectations in Q4 CY2025, with sales up 10.1% year on year to $503.1 million. On the other hand, next quarter’s revenue guidance of $485 million was less impressive, coming in 0.8% below analysts’ estimates. Its non-GAAP profit of $0.24 per share was 15.5% above analysts’ consensus estimates.
Is now the time to buy U? Find out in our full research report (it’s free for active Edge members).
Unity (U) Q4 CY2025 Highlights:
- Revenue: $503.1 million vs analyst estimates of $492.1 million (10.1% year-on-year growth, 2.2% beat)
- Adjusted EPS: $0.24 vs analyst estimates of $0.21 (15.5% beat)
- Adjusted Operating Income: $124.9 million vs analyst estimates of $107.2 million (24.8% margin, 16.5% beat)
- Revenue Guidance for Q1 CY2026 is $485 million at the midpoint, below analyst estimates of $489.1 million
- EBITDA guidance for Q1 CY2026 is $107.5 million at the midpoint, below analyst estimates of $117 million
- Operating Margin: -21.2%, up from -27.1% in the same quarter last year
- Billings: $499.1 million at quarter end, up 10.1% year on year
- Market Capitalization: $9.27 billion
StockStory’s Take
Unity’s fourth quarter was marked by notable growth in its core Vector advertising platform and a rebound in its Create software business, but the market’s negative reaction reflected concerns about the sustainability of these trends. CEO Matthew Bromberg highlighted that “Vector experienced its third consecutive quarter of mid-teen sequential revenue growth,” while Create saw its fastest year-over-year growth in over two years, particularly in China. However, management also acknowledged that the sharp decline in its legacy IronSource ad network masked some of the positive momentum from new products. Elevated investments in sales, marketing, and R&D, including cloud and AI hiring, contributed to margin improvements but did not fully alleviate investor unease about the company’s trajectory.
Looking ahead, Unity’s forward guidance was shaped by cautious assumptions about holiday seasonality, ongoing investment in AI initiatives, and the gradual transition away from lower-margin legacy businesses. Management expects Vector’s strong momentum to continue, driven by the integration of runtime engine data and expanded product features. Bromberg emphasized, “We don’t anticipate that the inclusion of runtime data will produce a lightning strike moment, but...the addition of highly behavioral data will result in significant compounding model improvements over time.” Despite confidence in its core platforms, Unity flagged that margin and growth improvements will be gradual as it invests in collaboration tools, AI-driven authoring, and new monetization strategies.
Key Insights from Management’s Remarks
Unity attributed its Q4 performance to strong adoption of its Vector advertising platform, renewed growth in Create, and ongoing transformation of its product and business mix.
-
Vector drives ad segment growth: The Vector platform delivered its third straight quarter of mid-teen sequential revenue growth, benefiting from increased advertiser demand and improved campaign performance. Management said Vector’s momentum was incremental rather than a shift from IronSource, highlighting its unique AI-driven capabilities.
-
IronSource ad network fades: The legacy IronSource ad network continued to decline, now representing less than 6% of total revenue. Management described this as a positive shift, moving away from commoditized, lower-margin business toward differentiated, higher-margin AI platform revenue.
-
Create rebounds, led by China: The Create segment saw its fastest annual growth in two years, with nearly 50% growth in China. Management credited interoperability with local platforms and a renewed go-to-market approach for this resurgence, as well as strong adoption of Unity 6.
-
Heavy investment in AI and collaboration tools: Unity increased spending in R&D and AI hiring, focusing on new features like browser-based authoring and AI-powered workflows. Management expects these investments to expand the addressable market by making content creation more accessible to non-developers.
-
Commerce tools in early access: Unity’s integrated in-app purchase platform entered early access, with general availability targeted for Q2. Management believes this offering will simplify monetization for developers, further enhancing the value proposition of its ecosystem.
Drivers of Future Performance
Unity’s outlook is driven by continued Vector expansion, integration of AI and behavioral data, and a focus on broadening its creator base through new product initiatives.
-
AI and behavioral data integration: Management plans to incorporate gameplay behavioral data into Vector’s AI models, aiming for gradual but compounding improvements in ad targeting and campaign performance. This will deepen Unity’s competitive moat, but management cautioned these benefits will accrue over time, not immediately.
-
Collaboration and browser-based authoring: Unity is prioritizing the rollout of web-accessible authoring tools and AI-based assistants, which management expects will attract new types of creators and allow for additional monetization models. The expansion beyond traditional software developers could grow Unity’s addressable market substantially.
-
Transition away from legacy models: With IronSource rapidly declining, Unity expects its overall business mix to shift toward higher-margin, AI-driven products. Management highlighted this as a path to improved operating leverage and margin expansion, though acknowledged that heavy investment in R&D may temper short-term profitability gains.
Catalysts in Upcoming Quarters
In future quarters, the StockStory team will be watching (1) the impact of runtime behavioral data on Vector’s ad performance and revenue growth, (2) the adoption rate and monetization potential of browser-based authoring and AI-driven creation tools, and (3) continued progress in phasing out IronSource and expanding into high-growth markets like China. These milestones will be critical for assessing Unity’s ability to achieve sustainable margin improvement and diversified revenue streams.
Unity currently trades at $21.28, down from $29.17 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free).
High Quality Stocks for All Market Conditions
The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.