Unity Software Inc. (U.US) recently held its Q3 FY25 earnings call, reporting strong performance across key business segments. The company's Grow division generated $318 million in revenue, up 11% sequentially and 6% year-over-year. Create revenue reached $152 million, growing 3% YoY (13% excluding non-strategic revenue impacts). Adjusted EBITDA stood at $109 million with a 23% margin, improving 200 basis points both YoY and sequentially. Free cash flow hit a record $151 million, up $36 million YoY, while cash reserves totaled $1.9 billion against $2.2 billion in convertible debt.
For Q4, Unity anticipates total revenue between $480-$490 million and adjusted EBITDA of $110-$115 million. Grow is expected to deliver mid-single-digit sequential revenue growth, while Create should maintain stable expansion (high-single-digit YoY growth ex-non-strategic items). Management emphasized Q2 2025 marked an inflection point, with Q3 results confirming the company's readiness for sustainable multi-year growth.
Key Business Highlights: 1. Vector AI demonstrates strong scalability, handling complex datasets and real-time market adaptations while continuously improving through machine learning. 2. Runtime data represents a multi-year growth opportunity, with developer adoption rates exceeding expectations for Unity 6-built games. 3. In-app payment solutions present significant potential, with Unity uniquely positioned to offer native cross-platform payment management. 4. China remains a standout market, contributing 20% of total revenue (up from 15%) across both Grow and Create segments.
Financial Outlook: - Cloud costs (Unity's second-largest expense) are expected to decline as a percentage of total costs despite business growth. - The company anticipates meaningful operating leverage in 2026 from revenue growth and cost discipline. - Strong cash generation ($500 million increase YoY) provides flexibility for organic investments, with M&A opportunities evaluated against high thresholds.
Industry Positioning: Unity sees the $700 billion programmatic ad market shifting toward CTV and retail media, with its Audience Hub product already driving higher engagement rates. The company maintains its horizontal advantage across platforms and game genres, differentiating from vertical-focused competitors.
Management remains optimistic about gaming industry growth amid a "creative destruction" phase, with AI-driven discovery becoming increasingly crucial in a content-rich environment. Vector AI shows broad-based ROAS improvements across all customer segments regardless of size, geography, or game type.