Unity Software Q2 Results: Momentum Expected to Continue in Q3

Unity Software's Q2 results were soft, but the stock has continued to rise due to strong growth in Unity Ad Network and Create subscription revenue. However, there are concerns about whether the Ad Network is cannibalizing ironSource revenue and the scalability of the business. Despite this, momentum is expected to persist into Q3.

Unity Software Inc. (U) continues to exhibit strong performance, with its stock surging 64% over the past three months, significantly outperforming the S&P 500's gains of 11.8% and the industry's 10.2% [1]. Despite a relatively soft Q2 performance, the company's stock has shown resilience, driven by robust growth in the Unity Ad Network and Create subscription revenue. However, there are concerns about potential cannibalization of ironSource revenue and the scalability of the business.

Q2 Performance and Ad Network Growth

Unity's second-quarter 2025 results showed mixed performance, with adjusted EBITDA margins at 21% and record free cash flow of $127 million. The company's AI-driven performance engine, Vector, has been a significant growth driver. Within the Unity Ad Network, Vector delivered 15% sequential revenue growth in the second quarter, with early signs that momentum is carrying into the third quarter [1].

Create Segment and Unity 6 Adoption

On the development side, Unity is seeing strong results from Unity 6, its most stable and high-performing version yet, which has recorded over 6.6 million downloads. Subscription revenues in the Create segment grew at double-digit rates, underscoring customer demand. The launch of Unity 6.2 introduced a new developer data framework, improving transparency and privacy controls, which further boosts trust and adoption [1].

Strategic Partnerships and Diversification

Unity is expanding its strategic partnerships and diversifying its revenue streams. A multiyear deal with Tencent ensures Unity’s presence in top global titles, while a collaboration with Scopely integrates Create and Grow tools for blockbuster games like Monopoly Go!. Unity also partnered with Nintendo to optimize Unity 6 for the Switch 2 launch, supporting third-party development on the platform. These partnerships highlight Unity’s strategic importance across gaming ecosystems worldwide [1].

Financial Discipline and Strong Profitability

Unity's financial discipline is evident in its ability to balance aggressive investments in AI and product development with tight cost controls. The company's $1.7 billion cash balance and flexible capital structure provide further room to fund growth initiatives without straining the balance sheet [1].

Momentum and Future Prospects

Despite concerns about potential cannibalization of ironSource revenue and scalability, Unity's momentum is expected to persist into Q3. The company’s earnings estimates for 2025 and 2026 have undergone sharp upward revisions, with earnings per share projected to grow 146.4% and 8.8%, year over year, respectively [1]. Unity's partnership with Globant S.A. further underscores its commitment to expanding its reach and integrating its products into enterprise technology stacks [2].

Conclusion

Unity Software Inc. (U) continues to demonstrate strong performance despite a relatively soft Q2. The company's focus on AI-driven growth, strategic partnerships, and financial discipline is expected to support its momentum into Q3. However, investors should remain vigilant regarding potential cannibalization of ironSource revenue and the scalability of the business.

References:
[1] https://finance.yahoo.com/news/unity-stock-fire-surges-64-160300757.html
[2] https://www.nasdaq.com/articles/unity-software-partners-globant-enhance-global-tech-adoption