Unity Software (U -5.01%), a platform known for powering real-time 3D content and interactive experiences, published its quarterly earnings results on August 6, 2025, for its fiscal second quarter. The most significant news was that GAAP revenue and non-GAAP earnings per share for Q2 2025 both came in ahead of expectations.—GAAP revenue reached $441 million, compared to the $427.79 million analyst estimate, and adjusted earnings per share (non-GAAP EPS) was $0.18, beating the $0.14 estimate. Despite outperforming estimates, both revenue and profits declined compared to the same quarter last year; revenue was $441 million (GAAP) and adjusted earnings per share was $0.18, compared to $449 million and $0.22 in Q2 2024. The company delivered a mixed quarter, with solid cash flow gains and successful cost controls, but underlying sales trends remain negative on a year-over-year basis, as GAAP revenue declined 2% year-over-year and 6% year-over-year in Q1 2025.
| Metric | Q2 2025 | Q2 2025 Estimate | Q2 2024 | Y/Y Change |
|---|---|---|---|---|
| Adjusted EPS (Non-GAAP) | $0.18 | $0.14 | $0.22 | (18.2 %) |
| Revenue | $441 million | $427.79 million | $449 million | (1.8 %) |
| Adjusted EBITDA | $90.5 million | N/A | N/A | |
| Free Cash Flow (Non-GAAP) | $126.7 million | $79.6 million | 59.2 % | |
| Net Cash Provided by Operating Activities | $133.1 million | $88.4 million | 50.6 % |
Source: Analyst estimates provided by FactSet. Management expectations based on management’s guidance, as provided in Q1 2025 earnings report.
Unity Software’s Business and Focus Areas
Unity Software operates a software platform that lets creators build, deploy, and monetize interactive content, especially real-time 3D experiences like games and simulations. Its main offerings are Create Solutions, which provides development tools and subscriptions for building content, and Grow Solutions, which helps developers make money and expand user reach—primarily through advertising technologies and monetization services.
In recent quarters, Unity has prioritized several key areas: extending its platform’s coverage to new devices such as consoles and mixed reality (XR), integrating innovation in artificial intelligence, and deepening engagement with its large creator community. The company’s success depends on combining a broad toolset for development with powerful monetization options, staying ahead in product innovation, and supporting a global base of users across many industries.
Key Developments and Segment Performance
The company beat its own guidance and analyst forecasts on both revenue (GAAP) and adjusted earnings (non-GAAP) metrics. Revenue (GAAP) landed at $441 million, outpacing its earlier projected range of $415 million to $425 million. Adjusted EPS (non-GAAP) of $0.18 was ahead by $0.04 compared to consensus. However, revenue fell 2% year-over-year and adjusted earnings per share (non-GAAP) was $0.18, compared to $0.22 in Q2 2024. The bottom line—while improving over internal expectations—was not yet back to prior levels.
Create Solutions, Unity’s suite of development tools and subscriptions, generated $154 million in GAAP revenue. This result marked a 2% increase year over year for Create Solutions revenue. However, this growth in Create Solutions revenue was driven in large part by a single $12 million sale of a term license—a one-time boost rather than a recurring trend. Subscription-based revenue, now nearly 80% of the Create segment, continued its growth, but non-strategic services and project-based consulting continued to shrink, accounting for less than 2% of total revenue.
Grow Solutions, covering Unity’s ad network and monetization tools, reported $287 million in GAAP revenue, down 4% year-over-year (GAAP). The bright spot in Grow was the performance of the Unity Ad Network—a platform within Grow that saw a 15% sequential quarterly gain, now representing nearly half (49%) of the segment’s revenue. This improvement was credited to the full rollout of Unity Vector, the company’s new AI-driven ad platform designed to deliver higher returns for advertisers, which was fully completed this quarter. However, other ad products, including those from prior acquisitions, trended lower, offsetting some of Vector’s early gains.
Profitability and cash flow trends reflected operational adjustments. Adjusted EBITDA reached $90.5 million, down from $113.5 million in Q2 2024, with adjusted EBITDA margin compression from 25% in Q2 2024 to 21%. Free cash flow (non-GAAP) was $127 million, compared to $80 million in Q2 2024, an increase of approximately 59%. Net cash provided by operating activities (GAAP) was $133 million, compared to $88 million in Q2 2024, an increase of approximately 51%. Cloud infrastructure costs, previously elevated due to simultaneous operation of legacy and new ad platforms, are expected to moderate in the back half of 2025, now that the company has completed migration to the new model.
Innovation and diversification remain ongoing themes. The launch of Unity 6 (the latest release of its game engine software) and its 6.1 update expanded support for third-party devices and platforms, including new gaming consoles and XR hardware. The migration to Unity Vector, its AI-based ad platform, aims to address increased competition in advertising monetization by improving key metrics for customers such as return on ad spend (ROAS), which measures how much revenue a company earns for every dollar spent on advertising. Management reported that Unity Vector has improved installs and in-app purchase value by 15% to 20% for certain customers compared to the legacy system.
One-time events included the aforementioned license sale within Create, as well as the full migration to Vector—a milestone that unifies ad operations and is expected to reduce costs moving forward.
Looking Ahead: Guidance and What to Watch For
Management projected revenue between $440 million and $450 million for Q3 2025, signaling stability or a minor increase from the most recent period. Adjusted EBITDA guidance was set in the $90 million to $95 million range for Q3 2025, slightly above the current quarter. In segment terms, management expects mid-single-digit sequential revenue growth in Grow for Q3 2025, with a slight sequential decline in Create as the impact of recent one-off licensing fades. No full-year outlook has been provided—Unity is maintaining quarter-by-quarter guidance, citing ongoing prudence around its evolving business mix and new product ramp-up.
Second, monitoring cash flow trends and margin performance will be key, especially as the company completes its technology platform transitions and capitalizes on AI innovation. Unity Software does not currently pay a dividend.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
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