U Q2 Deep Dive: AI-Powered Ad Growth and Partnerships Drive Mixed Outlook

Game engine maker Unity (NYSE:U) beat Wall Street’s revenue expectations in Q2 CY2025, but sales fell by 1.9% year on year to $440.9 million. On the other hand, next quarter’s revenue guidance of $445 million was less impressive, coming in 0.6% below analysts’ estimates. Its non-GAAP profit of $0.18 per share was 22% above analysts’ consensus estimates.

Is now the time to buy U? Find out in our full research report (it’s free).

StockStory’s Take

Unity’s second quarter results reflected a balance of progress and ongoing challenges, as management attributed performance to strong adoption of its AI-powered Vector ad platform and continued growth in its Create subscription business. CEO Matthew Bromberg highlighted that the Unity Ad Network saw 15% sequential revenue growth due to Vector, while Create segment momentum was supported by double-digit subscription increases and high-profile partnerships. However, Bromberg also acknowledged that softness in other ad products, resulting from resource redeployment toward Vector’s rollout, tempered overall segment gains.

Looking ahead, Unity’s guidance is shaped by the expectation of stabilizing trends in its broader ad portfolio and further AI-driven gains in Vector. Management pointed to ongoing investments in AI and the upcoming launch of Unity 6.2, which introduces a developer data framework aimed at improving privacy and control for customers. CFO Jarrod Yahes noted, “We are early in our journey with Vector, and each improvement in the AI model could provide further upside as we continue to scale.”

Key Insights from Management’s Remarks

Unity’s management credited the quarter’s results to rapid AI product adoption, strong customer partnerships, and operational discipline, while also flagging the impact of resource shifts within its ad business.

• AI-powered Vector drives ad growth: The Vector platform spurred 15% sequential revenue growth in the Unity Ad Network, with management highlighting that ongoing model upgrades are delivering increased value to advertisers and are expected to continue driving performance.
• Ad product stabilization underway: While Vector’s rollout led to strong results in the Unity Ad Network, management acknowledged that resource redeployment caused softness in other ad products. They expect stabilization as AI capabilities expand to the broader ad portfolio.
• Create segment delivers steady growth: Unity’s Create business posted double-digit subscription growth, driven by momentum in Unity 6 adoption, which now exceeds 6.6 million downloads. Management emphasized smoother transitions to new software versions and continued focus on developer experience.
• Strategic partnerships accelerate expansion: Major multiyear deals with Tencent and Scopely, and a new collaboration with Nintendo for Switch 2, are extending Unity’s reach in key gaming markets and supporting both Create and Grow segments.
• Non-gaming verticals gaining traction: Unity reported its fastest subscription growth rates outside of gaming, with automotive and healthcare partnerships—such as integrations with BMW and Specto Medical—broadening the use of its 3D technology.

Drivers of Future Performance

Unity expects continued AI-driven improvements, expanding partnerships, and operational efficiencies to shape its near-term growth and profitability.

• AI investment and expansion: Management is prioritizing further AI enhancements across both ad and content creation tools, expecting mid-single-digit sequential growth in the Grow segment and ongoing improvements in ad efficiency and customer acquisition.
• Growth from major partnerships: New long-term agreements with top gaming companies and platform providers are anticipated to drive higher strategic Create revenue and extend Unity’s influence in international markets, especially China.
• Margin improvement and cost control: CFO Jarrod Yahes emphasized operating leverage from tight cost management and cloud spend efficiencies, projecting that improved margins will support investments in high-impact R&D and product development.

Catalysts in Upcoming Quarters

Looking forward, our analysts will be monitoring (1) the rate at which Vector’s AI capabilities are implemented across additional ad products, (2) the impact of new partnerships with gaming giants like Tencent and Nintendo on Create adoption and international growth, and (3) the initial feedback and adoption trends following the launch of Unity 6.2 and its developer data framework. Updates on non-gaming verticals and continued operating margin progress will also be important signposts.

Unity currently trades at $33.11, down from $33.96 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free).

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